And the numbers are out! How did the latest U.S. jobs report turn out and what might this mean for the Greenback’s forex price action? Here are the main takeaways from the February NFP release:
1. Stronger-than expected employment change and jobless rate
Given Uncle Sam’s streak of impressive hiring gains, it really wasn’t much of a surprise that the latest figures also beat market expectations. The economy added 295K jobs during the month, higher than the projected 240K figure. This was enough to bring the jobless rate down from 5.7% to 5.5% – its lowest level since May 2008.
This marks the 12th consecutive time that the U.S. has added more than 200K jobs each month, marking its fastest pace of jobs growth in more than a decade. A closer look at the components of the February report shows that hiring gains were seen in almost all sectors of the economy.
2. Feeble wage growth still a concern
The weak spot in the latest NFP release is that of wage growth, as average hourly earnings ticked up by a measly 0.1% during the period. This is lower compared to the estimated 0.2% increase and the previous month’s 0.5% rise.
This suggests that there is still plenty of slack in the labor market and that it may take some time before the pickup in hiring translates to stronger consumer spending. With feeble wage growth, Americans might rather hold on to their hard-earned cash instead of increasing their purchases or spending on bigger-ticket items.
3. Increased speculations of June Fed rate hike
Judging by the reaction of the U.S. dollar to the jobs release, it looks like forex traders are starting to price in expectations of a Fed rate hike as early as June. After all, Fed head Yellen did say that they could start considering tightening monetary policy when the economy reaches full employment with the jobless rate ranging from 5.2% to 5.5%.
Fed policymakers had expressed confidence that consistent improvements in the labor market would translate to higher wages and eventually stronger inflation. Unfortunately, there hasn’t been much evidence of this in the latest jobs release just yet. Bear in mind that, apart from full employment, FOMC officials are also waiting for inflation to reach its target range of 1.7% to 2% before moving closer to a rate hike.
At the end of the day though, the U.S. economy is faring far better compared to its peers and the Fed is probably the only central bank thinking about tightening monetary policy, which means that the U.S. dollar might still be the most attractive currency among the bunch. Do you agree that the Greenback can keep climbing for the next few months?