Posted on March 6, 2015 by the XM Investment Research Desk at 3:42 pm GMT
The highly anticipated US February employment report came in much stronger-than-expected, which led the dollar to rally across the board. Nonfarm payrolls increased by 295 thousand against expectations of only a 240 thousand increase, whereas the unemployment rate fell to 5.5% compared to 5.7% the previous month and against expectations of a drop only to 5.6%. The only weaker-than-expected aspect of the report was wage growth, as average earnings climbed by only 0.1% month-on-month compared to expectations of a rise of 0.2%. January’s wage growth was an impressive 0.5%.
The news emboldened dollar bulls to take on fresh levels. The euro was thus driven below 1.09 to a new 11 ½ year low of 1.0843, a day after the ECB unveiled details of its asset purchase scheme. Dollar / yen also climbed to a near 3-month high of 121.27, eyeing the 7 ½ year high of 121.84. The pound dipped below 1.51 and the aussie fell below 78 cents to 0.7728.
The dollar’s move was also boosted by bets that the Fed could now be tempted to raise interest rates as soon as June. Showing “patience” in the sight of ever lower unemployment rates could lead to future problems for the Fed, although it was also true that wage growth was not particularly strong and therefore the threat of inflation did not appear as serious. The 10-year Treasury bond yield climbed to its highest of 2015 at 2.24%. Gold also crashed in the face of the strong dollar and possible Fed rate hikes, as the precious metal gave up the 1200 level for good and fell to 1174.
Prior to the all-important jobs numbers, Eurozone GDP for the fourth quarter was reaffirmed at 0.9% quarter-on-quarter, while earlier in the day German industrial production for January grew more quickly than expectations. A drop in Eurozone government bond yields however following the ECB meeting, was weighing on the euro even before the forecast-beating employment report was released.
Looking to the start of next week, the Asian session will feature a reaction from China’s February Trade Balance numbers to be released on Sunday and Japan’s final GDP growth for the fourth quarter.