Dollar Ends Higher on US Labor Market Strength

Rich Asplund - Barchart - Fri Apr 5, 2:28PM CDT

The dollar index (DXY00) on Friday rose by +0.19%. The dollar on Friday garnered support after US nonfarm payrolls rose more than expected, bolstering expectations that the Fed will be in no hurry to lower interest rates. Higher T-note yields on Friday are also supportive of the dollar. In addition, hawkish comments from Dallas Fed President Logan and Fed Governor Bowman were bullish for the dollar when they said now is not the time to start cutting interest rates. However, the strength in equities on Friday curbed liquidity demand for the dollar.

US Mar nonfarm payrolls rose +303,000, stronger than expectations of +214,000 and the biggest increase in 10 months. The Mar unemployment rate fell -0.1 to 3.8%, right on expectations.

US Mar average hourly earnings eased to +4.1% y/y from +4.3% y/y in Feb, right on expectations and the slowest pace of increase in 2-3/4 years.

US Feb consumer credit rose +$14.125 billion, below expectations of +$15.000 billion.

Fed Governor Bowman said she continues to see a number of upside risks to inflation, and it is "still not yet" time to lower interest rates. She added that it's "quite possible" that the level of the federal funds rate consistent with low and stable inflation "will be higher than before the pandemic, and if that is the case, fewer rate cuts will eventually be appropriate to return our monetary policy stance to a neutral level."

Dallas Fed President Logan said “it’s much too soon” to think about cutting interest rates on concern that inflation progress could stall out and that price growth could fail to cool “in a timely way” to the Fed’s 2% target.

The markets are discounting the chances for a -25 bp rate cut at 6% for the next FOMC meeting on April 30-May 1 and 58% for the following meeting on June 11-12.

EUR/USD (^EURUSD) on Friday fell by -0.03%. The euro posted modest losses Friday and was under pressure today on weaker-than-expected Eurozone economic news on Feb retail sales and German Feb factory orders. The euro remained lower after Friday’s larger-than-expected increase in US Mar nonfarm payrolls boosted the dollar.

Eurozone Feb retail sales fell -0.5% m/m, weaker than expectations of -0.4% m/m.

German Feb factory orders rose +0.2% m/m, weaker than expectations of +0.7% m/m.

The German Feb import price index fell -0.2% m/m and -4.9% y/y, weaker than expectations of unchanged m/m and -4.6% y/y.

Swaps are pricing in the chances for a -25 bp rate cut by the ECB at 7% for its next meeting on April 11 and 97% for the following meeting on June 6.

USD/JPY (^USDJPY) on Friday rose by +0.17%. The yen retreated from a 2-week high against the dollar Friday and turned lower after T-note yields jumped on the stronger-than-expected US May payrolls report. The yen on Friday initially strengthened on better-than-expected Japanese economic news on Feb household spending and the Feb leading index CI. Also, hawkish comments from BOJ Governor Ueda boosted the yen when he said the likelihood of attaining the bank's inflation target will steadily rise from summer through autumn.

The Japan Feb leading index CI rose +2.3 to a 1-1/2 year high of 111.8, stronger than expectations of 111.6.

Japan Feb household spending fell -0.5% y/y, stronger than expectations of -2.9% y/y.

BOJ Governor Ueda said the likelihood of attaining the bank's inflation target will steadily rise from summer through autumn, fueling speculation the BOJ will boost interest rates.

Swaps are pricing in the chances for a +10 bp rate increase by the BOJ at 0% for the April 26 meeting and 8% for the following meeting on June 14.

June gold (GCM4) Friday closed up +36.9 (+1.60%), and May silver (SIK24) closed up +0.256 (+0.94%). Precious metals on Friday shook off early losses and posted moderate gains, with Jun gold climbing to a contract high and nearest-futures Apr gold climbing to an all-time high. Also, May silver posted a contract high and nearest-futures Apr silver posted a 2-year high. Precious metals rallied Friday on heightened geopolitical risks between Iran and Israel. Iran has threatened retaliation against Israel for launching airstrikes on Iranian military officials in Syria, boosting safe-haven demand for precious metals. Also, fund buying of silver supports silver prices after long silver holdings in ETFs rose to a 7-1/4 month high Thursday.

A stronger dollar on Friday was bearish for metals. Another bearish factor for precious metals was Friday’s stronger-than-expected US Mar nonfarm payrolls report that bolstered speculation the strength in the US labor market will keep the Fed from cutting interest rates. In addition, higher global bond yields on Friday were negative for precious metals.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.