Dollar Boosted By Employment Data

Dollar Boosted By Employment Data

The US dollar was boosted today by official government data that shows US employers continued to create jobs at a robust pace last month, the latest brick in a rapidly-building wall of evidence that the economy has rebounded after a winter lull.

Growth in payrolls during May wasn’t able to match the incredible pace set in April, as expected, but was strong enough to continue the overall upbeat trend of the labor market, coming in above 200,000 for the fourth straight month. The average monthly job gain over the last three months is 234,000, compared with an average of 197,000 per month in the 12 months preceding May.

With May’s gains, total payroll employment has climbed above its pre-recession levels, non-farm payrolls having declined by 8.7 million between January 2008 and the low-point of February 2010.  The number has risen by 8.8 million since then. The unemployment rate was unchanged at 6.3%, a better result than had been expected, with 6.4% being the consensus forecast by analysts polled by Reuters ahead of the release.

The dollar made broad gains following the release of the data, and by late morning in New York, EUR/USD and GBP/USD were both down around 0.18%, while USD/CHF gained 0.3% and USD/JPY rose 0.12%. If there was one area of concern in today’s US employment data it was in the participation rate, which remains depressed at 62.8%. The rate is down 0.6% on the year, and is evidence of the slack in the labor market that Fed boss Janet Yellen has warned about repeatedly.

Canadian unemployment data was also released this morning, and though the labor force expanded in May following April’s surprise contraction, the report looked a little anemic compared to the US equivalent. The unemployment rate ticked higher to 7.0% as more people joined the jobs market, above the consensus estimate which had called for an unchanged 6.9%, while the advance in jobs, which showed a substantial bounce at the headline level from -28,900 in April to +25,800 in May, was driven by gains in part-time employment, Statistics Canada said. This is an ongoing story, with the 0.5% gain in employment in the 12 months to May accounted for by growth in part-time jobs. The weakness revealed when digging below the headline advance, therefore, does little to raise hopes for second-quarter GDP growth in Canada, and USD/CAD spiked higher in the aftermath of the report’s release, touching 1.0948 in morning trading. The Loonie’s losses eased as the day progressed, though, and USD/CAD was up by just 0.09% at 1.0930 by early afternoon in New York.

The dust is still settling in the forex market from yesterday’s announcement of new stimulus measures from the European Central Bank (ECB). The euro has generally been in the ascendance this year, much to the consternation of the ECB, and while the central bank’s action may breathe some life into the eurozone economy and help combat inflation, it does not seem to have significantly affected the euro’s value. The implementation of the negative deposit rates may yet filter through to affect exchange rates, but it may require the ECB to embrace full-blown Fed-style asset purchases before the euro, propped up by Germany’s large trade surplus, sees any drastic correction.
Governing Council member and chief of the German Bundesbank Jens Weidmann said in an interview with the Bild newspaper that it is too early to be speculating about further action from the ECB, though, saying ‘We have to wait and see how the measures take effect. It would be absurd to already start talking now about a further set of measures.’ He also revealed that the Governing Council ‘wrangled long and hard’ over which stimulus measures to implement.

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