Surprisingly Strong Jobs Report Boosts Us Dollar

Surprisingly Strong Jobs Report Boosts Us Dollar

Vying with the ECB rate decision for highlight of the week in terms of economic releases, the monthly employment report did not disappoint in living up to its billing as a prime market mover.  



Surprisingly Strong Jobs Report Boosts Us Dollar
Surprisingly Strong Jobs Report Boosts Us Dollar

The latest data suggests the labor market is faring much better than previously thought, as non-farm payrolls came in far better than expected, growing by 295,000 in February versus a consensus estimate of 230,000. This follows strong results for December (+329,000) and January (+239,000), which were revised slightly lower in today’s report.

Gains were driven by the private sector, where payrolls jumped from 237,000 (revised lower from the originally-reported 267,000) to 288,000. The unemployment rate also came in better than expected, dipping to 5.5% from 5.7%, against expectations of 5.6%, though the improvement in the number was helped by an undesirable drop in the participation rate, which nudged down a tenth of a percentage point to 62.8%.

The upshot is that the labor market is looking very healthy. Healthy enough, in fact, that the hawks at the Fed will feel even more justified in arguing that monetary policy should be normalized sooner rather than later. Increased expectations along these lines has boosted the US dollar substantially in the FX market today, and by early afternoon in New York, EUR/USD was down 1.64% at 1.0849, setting a new 11-1/2 year low, while GBP/USD fell 1.21% to 1.5054 and USD/CAD climbed 1.05% to 1.2617.

The Canadian dollar was affected by news of an unexpectedly large widening of Canada’s trade gap. The Canadian Merchandise trade balance plunged to -C$2.45 billion in January, coming in far worse than the consensus estimate of -C$1.2 billion, to set the fourth successive month in which imports  have outweighed exports.

The worsening in the trade gap was entirely driven by a decline in exports: imports were flat while exports slumped 2.8%. The bilateral surplus with the US sunk to C$1.21 billion, the lowest it has hit in over 20 years. Canadian GDP data released earlier in the week showed strength in the economy at year-end 2014, but this latest report suggests things may not be as healthy for the start of 2015, with the oil-export-heavy Canadian economy struggling to deal with the impact of lower energy prices — though it should be noted the Bank of Canada said just a few days ago that it has factored the effect of dropping energy prices into its outlook.  


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