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Solid U.S. Jobs Data Fails To Save USD




February jobs data out of the US was strong; the economy added 273k jobs and the unemployment rate fell to 3.5% from 3.6%. Fleeting USD strength was seen in the aftermath of the report, but the move was quickly pared.


Why?


As I flagged to the members when previewing the report in the run-up to its release, this data was always likely to be completely shrugged off by the market. The data was gathered in February, a month during the majority of which Covid-19 was seen as more of a China problem rather than a global risk. A pick-up in the pace of the virus’ international spread only really began in latter stages of February and the numbers in the US only really begun to jump in March. For that reason, March data will be very interesting; it will tell us how US employers responded in the initial stages of the outbreak. February data on the other hand is being looked at as “pre-Covid-19”.


Moreover, USD is trading off of other factors at the moment. More precisely, a massive dovish shift in the markets expectations for Fed easing in the near future has hammered USD; not because other central banks aren’t also going dovish, but the markets expect the biggest dovish shift from the Fed.


Indeed, the Fed already signalled its intent to get ahead in this new “race to the bottom” when it cut rates by 50bps following an emergency meeting on Tuesday. As Fed speakers have been keen to indicate today, more cuts will likely follow at the Fed’s next meeting on March 18th.


A huge 75bps is expected to be axed from the Fed’s key lending rate at that meeting, which would bring rates down to 0.25%-0.5%. Inevitably, with rates seemingly soon to be approaching their “lower bound” (the Fed has indicated that it does not want to take rates into negative territory, so 0.0% looks to be as low as they are willing to go), people have started talking about QE.


If things keeping going as they are, it appears the only way that USD will get any let up is once the Fed have actually cut rates to zero and started QE; that way USD should stabilise as the Fed will have equally limited monetary easing ammunition left at its fingertips as other major central banks such as the ECB and BoJ.



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