Dollar Stages Comeback as Stellar NFP Triggers Rethink on Fed’s Easing Timeline

Dollar is staging a significant rebound in early US session, fueled by unexpectedly robust Non-Farm Payroll data. This surge was mirrored by a sharp increase in 10-year treasury yield, which is on the verge of reclaiming 4% handle. Conversely, stock futures took a downturn in response to the revelations from the labor market.

January’s NFP report dramatically exceeded expectations, showcasing a labor market that remains resilient and dynamic. The highlight was not just the surprising headline job growth but also the notable acceleration in wage increases. This wage growth underscores the enhanced earning capabilities of the American workforce, signaling a tightening labor market that might exert upward pressure on domestic inflation.

This labor market snapshot suggests Fed would need to reassess its stance on policy easing this year. Chair Jerome Powell had already dismissed the possibility of a rate cut in March, and the latest employment figures only reinforce this position. The question now shifts to whether May is too soon to initiate the rate cut cycle.

In Europe, at the time of writing, FTSE is up 0.21%. DAX is up 0.45%. CAC is up 0.28%. UK 10-year yield is up 0.118 at 3.868. Germany 10-year yield is up 0.079 at 2.227. Earlier in Asia, Nikkei rose 0.41%. Hong Kong HSI fell -0.21%. China Shanghai SSE fell -1.46%. Singapore Strait Times rose 1.17%. Japan 10-year JGB yield fell -0.0342 to 0.661.

US NFP rises 353k, average hourly earnings rises 0.6% mom

US Non-Farm Payroll employment rose 353k in January, significantly surpassing expectation of 178k. Prior month’s growth was also revised sharply higher from 216k to 333k. Both were well above monthly average of 255k growth in 2023.

Unemployment rate was unchanged at 3.7%, below expectation of 3.8%. Labor force participation rate was unchanged at 62.5%.

Average hourly earnings grew 0.6% mom, well above expectation of 0.3% mom. Annual hourly earnings growth also accelerated from 4.4% yoy to 4.5% yoy, above expectation of 4.1% yoy.

BoE’s Pill advocates patience, rate cut remains some way off

BoE Chief Economist Huw Pill articulated a cautious stance on the prospect of interest rate cuts, noting that such a move remains “some way off.” He underscored the absence of adequate evidence suggesting a trajectory towards the inflation target, which necessitates a sustained period of tight monetary policy to mitigate domestic inflationary pressures.

“Crucially, for me at least, we don’t have sufficient evidence yet,” Pill stated, pointing to the need for more conclusive data to consider easing rates.

Further elaborating his view, Pill advised against overreacting to any short-term reversion of inflation to target level in the coming months, particularly if driven by external factors. Instead, he advocated for a focused and sustained effort to address domestic inflationary pressures through maintaining a restrictive policy stance.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 145.85; (P) 146.48; (R1) 147.07; More…

USD/JPY’s strong rebound today maintains its near term bullishness. Focus is turning to 148.79 resistance. Firm break there will confirm that correction has completed at 145.88, and rise from 140.25 would then resume to 151.89/93 key resistance zone. In case of retreat, further rally will now remain in favor as long as 145.88 support holds.

In the bigger picture, stronger than expected rebound from 140.25 dampened the original bearish review. Strong support from 55 W EMA (now at 142.49) is also a medium term bullish sign. Fall from 151.89 could be a correction to rise from 127.20 only. Decisive break of 151.89/93 will confirm resumption of long term up trend. This will now be the favored case as long as 140.25 support holds.

Economic Indicators Update