Date: 05 Feb 2018

Robust US jobs and hourly income data on Friday raised the possibility that the Fed, which has already forecast three US rate hikes in 2018, may actually end up doing four. Yet the US dollar couldn’t hold all its gains in the post-non farm payrolls (NFP) session on Friday in North America. The greenback might have been expected to have consolidated or even extend those gains after January saw a 200,000 January NFP rise (plus an upwardly revised 160,000 print for December) and a 2.9 per cent year-on-year increase in average hourly earnings (AHE), the largest jump since June 2009, but it didn’t. So, why not? And what might it mean going forward?  It’s not easy to pick holes in the headline NFP number, nor indeed the December revision. Those numbers, if taken at face value, should have been US dollar-positive.

The fact that the greenback then gave back its gains might suggest that the currency market collectively just doesn’t currently like holding US dollars for any length of time. Admittedly the eye-catching AHE figure might have been distorted by weather-related disruptions as aggregate hours worked were down a sharp 0.5 per cent month-on-month. Nevertheless, that AHE figure might have been expected to have had more than a fleetingingly positive impact on the greenback. Additionally, during Monday’s session in Asia the US dollar didn’t seem to benefit even as the yield on the 10-year US Treasury rose to 2.87 per cent. The question that both US dollar bears and bulls might want to ask themselves is, if the greenback can’t catch a bid when the key monthly US employment data beats forecasts, what is going to give the US currency traction on the upside?

Written by Neal Kimberley, External Currency Analyst.