USD: After Non-Farm Payrolls Miss, Greenback Weakens as US Futures Rise

The USD has dropped sharply in the early US session following another disappointing NFP report. All of yesterday’s late gains have now been reversed. The Canadian dollar has also weakened as a result of weaker-than-expected job data. Other commodity currencies, on the other hand, are marginally strengthening. In other markets, US futures are rising on the anticipation that the Fed will delay tapering. Due to the weakening of the dollar, gold prices have recovered.

In May, nonfarm payroll employment increased by 559k, falling short of expectations of 621k. The previous month’s result was raised from 266k to 278k. In February 2020, total non-farm payroll employment was -7.6 million, or -5.0 percent, lower than it was before the pandemic.

The unemployment rate fell to 5.8 percent, down from 6.1 percent, which was somewhat lower than the 5.9 percent forecast. The number of unemployed people has decreased by -496k to 9.3 million. In February 2020, the unemployment rates were still significantly above pre-pandemic levels of 3.5 percent and 5.7 million. Since June 2020, the labor force participation rate has been stable at 61.6 percent, with a range of 61 percent to 61.7 percent.

Wage growth was high, with average hourly wages rising 0.5 percent mom, versus a 0.2 percent mom estimate.

USD: The Focus Remains on the 10-Year Yield, Dollar May Continue Weaker

The link between the USD and US bond yields has strengthened, providing minimal pressure for higher yields, implying that the US Dollar will continue to be weak.

The yield on a 10-year UST bond is still important. The FX/UST yield link has gotten stronger over the last month, which is surprising given the tight range in which the UST 10yr yield has traded. However, based on daily percent changes over 30 days, research of G10 FX with UST 10yr yields shows that every FX pair is more strongly connected than a month ago.

The strongest correlation remains USD/JPY, while the poorest correlations are GBP and CAD. We expect the link to remain weak because of the UK-specific supportive factor. If 10-year Treasury rates continue to rise, the divergent correlations hint at EUR/GBP falling further. Following today’s jobs report pointing to 10-year yield downside risks, the FOMC has undoubtedly made “much further progress” needed to change the pace of purchases, leaving the dollar susceptible to the downside.