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    Dollar plummets after big miss on US non-farm payrolls

    Jobs growth in the United States slowed to the lowest since 2010 in May even as the unemployment rate fell to an 8½-year low.  Non-farm payrolls missed forecasts by a large margin as they rose by just 38k instead of the expected 164k. Adding to the poor figure was a downward revision to April’s reading from 160k to 123k.

    The disappointing increase in the number of new jobs was in sharp contrast to the surprise dip in the jobless rate, which fell from 5.0% to 4.7% in May, beating forecasts of 4.9%. However, the decline was mainly due to a drop in the labor force participation rate, which fell by 0.2% to 62.6%.

    There were big falls in the mining, construction and manufacturing sectors, but the largest decline came from the information sector, which was hit by a strike at the telecoms company, Verizon. According to the Labor Department, up to 35,100 workers were affected by the strike action and this would have significantly skewed May’s jobs numbers. Poor weather in some US regions may have also acted as a temporary factor in impacting today’s data.

    There were no surprises in the average hourly earnings figures though as they rose by 0.2% month-on-month in May, in line with estimates. On an annual basis, average pay was up 2.5% in May, unchanged from the previous month. According to economists’ estimates, wages in the US need to rise by between 3-3.5% for inflation to rise towards the Fed’s 2% objective. The Fed is therefore unlikely to be concerned just yet about the rate of increase in earnings.

    The dollar fell sharply after the data as the weak figures have now eliminated the likelihood of a Fed rate hike in June. The odds for a June increase as implied by the fed funds futures market fell to just 4% after the jobs report. The dollar plummeted to 107.52 yen immediately after the data and later extended its losses to 106.68 yen in late European trading as the disappointing numbers continued with the latest ISM non-manufacturing composite. The euro broke above 1.13 dollars for the first time in 2½-weeks, while the pound hit a high of 1.4581 dollars.

    The big focus now is on Fed Chair Janet Yellen’s speech on Monday where she is expected to provide some guidance to the markets on what the FOMC will decide at its rate setting meeting on June 14-15.

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