The U.S. Dollar is trading in stronger ranges following the Non-Farm Payrolls print with overwhelming results.
Overview
May NFPs were supposed to come in below 200K at 180K, thus likely suggesting some softening of the Labor sector. However, the figure came out at 272K while the prior April reading was only downwardly revised slightly to 165K.
Average Hourly Earnings improved more than estimated at 0.4% over 0.3% while the yearly average climbed to 4.1% from 3.9%. It is worth pointing out that the Unemployment Rate is at 4.0% from 3.9%, while the Labor Force Participation Rate slid a bit. Nevertheless, the weakening signs did not materialize in these numbers and it is natural for it to uplift the Buck while equities and other markets take it as bad news for stimulus via rate cuts anytime soon.
After some reaction, analysts feel that the combination of higher wages and increasing Unemployment may be indicative of “stagflation” that could develop. Overall, this data has shaken markets and injected a bit more volatility. At the time of writing, the chances of a Fed cut in July fell to 8.0% while the Buck has improved rapidly, up to its best level since start of May per the Bloomberg Dollar Spot Index.
What to Watch Today…
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EUR ⇓
The Euro erased all of its gains for the week as the NFPs in the U.S. decreased the probability of a “Dovish” Fed for the remainder of 2024. While closer evaluation of the labor figures continues, the markets seem to take it as a sign the Fed will not have room to make cuts. Yesterday, the European Central Bank’s announcement produced a bit of a “hawkish cut” effect, with the 25 basis points reduction to their benchmark rate uplifting the Euro instead of sinking it. We shall see how resilient the Euro can stay. Gross Domestic Product for Q1’s final reading came in at 0.3% as forecast, but Household Consumption came in lower than estimated.
MXN ⇑
The Mexican Peso has recovered by over half a percent against the Dollar this morning following a major swing downward in the last hours of yesterday’s North American session. After 3PM yesterday, MXN collapsed suddenly as news broke out that Morena Party legislators would set an agenda of about 18 reforms to be passed that included controversial changes to the justice system and wages.
With Claudia Sheinbaum’s election as President with AMLO’s blessing causing waves across business leaders, Peso has paid a heavy toll with the belief that in the long-term, a very powerful Morena-led government will have little in terms of opposition as well as checks and balances on their proposals. This pessimistic rhetoric has also been countered this morning with analysts reminding the press that Congressional consensus is not guaranteed for all these changes to take place. Expect these FX moves ahead of September when new lawmakers take office.
