• Dollar rallying to new highs
  • 295,000 new jobs in February
  • Fed may move before Bank of England
  • Aussie dollar confusion

The US dollar is setting new highs this morning after the release of February Employment Report that  embarrassed most of the professional forecasters, including myself.

The jobs data blew away the market’s “glass is half empty” consensus forecast of 235,000 new jobs by creating 295,000 jobs last month.  The unemployment rate also fell by 0.2 percent to 5.5 percent, mostly driven by people finding jobs instead of leaving the labor force.

march-6 graph

This morning’s jobs data confirms the Fed’s view that the labor market is getting tight, and it is safe to raise the overnight interest rate this year.  That said, I am still with the camp that says the Fed will move in September or later. Why?  Despite the impressive job headline figures, wages have remained stuck at a 2 percent rate for the past four years.  With no wage gains, growth will be difficult to sustain.

In summary, the labor market looks fully recovered. Now, the market will be watching out any sign of wage pick up. Stay tuned.

EUR-USD has fallen to its knees after getting hit by a one-two punch.  First, ECB announced yesterday that it will purchase bonds with negative yields.  This announcement immediately lowered Eurozone interest rates.  In contrast, US interest rates are going up this morning.

GBP-USD is trading lower this morning as the market is betting that Fed will be raising the interest rate before the Bank of England.

USD-CAD rose to a five-year high this morning.  The February Ivey PMI remained in the contractionary territory for the two consecutive months.   There seems to be no pickup in economic activities.

AUD-USD fell overnight after the RBA Deputy Governor commented that the Aussie dollar may be too weak now. Considering that the RBA has been unwavering in its assessment of the Aussie dollar being too strong for months, I am somewhat confused.

Have a great Friday!