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The Dollar needed a decent above-consensus jobs report to draw a line under weakness.
Instead, it got a headline non-farm payroll that read at +151K for February, which is below the 160K the market thought it would get.
The unemployment rate ticked from 4.0% to 4.1%, meaning that, if anything, today's data bolster the case for at least three interest rate cuts over the remainder of the year.
It has been the rise in bets for the Fed to step on the gas in the face of tariff-induced uncertainty and economic weakness that has knee-capped the Dollar of late.
"The worst is probably yet to come. A cocktail of shocks is being thrown at the U.S. economy: the end of Biden-era stimulus, historic policy uncertainty curtailing hiring and investment decisions, trade wars, and DOGE’s assault on the federal government and its contractors. February was too soon to see the full effect, but it is very likely that they will over time," says Kyle Chapman, FX Markets Analyst at Ballinger Group.
The Pound-to-Dollar exchange rate (GBP/USD) quotes at 1.2904, having risen 2.62% this week, its strongest weekly gain since November 2022.
"A clear push through the low 1.29s targets additional retracement gains towards 1.31. Support is 1.2865," says Shaun Osborne, Chief FX Strategist at Scotiabank.
The Dollar upended expectations by falling in response to tariff announcements, whereas the playbook heading into this week had been that tariffs were undeniably positive for the currency.
The Dollar is now tracking U.S. bond yields and interest rate expectations lower, as investors bet Donald Trump's policy agenda poses significant headwinds to growth.
Image courtesy of DNB Markets.
However, Thomas Ryan, North America Economist at Capital Economics, says these employment data confirm that the economy is not plummeting towards a recession.
"Some of those fears may resurface in the March Employment Report, when recent federal government layoffs will be a much larger drag on employment than they were last month. But with private-sector hiring still running at a fairly healthy three-month average pace of 169,000, it suggests the labour market can handle it," he explains.
Wage growth also points to resilience and inflationary forces that will limit the Federal Reserve's ability to cut too far, which would ultimately limit the Dollar's depreciation potential.
Wages rose to 0.4% month-on-month in January, slowing to 0.3% in February, raising the annual run rate to 4.0%.
"It seems that wage growth has stabilised at around 4% recently," says Knut A. Magnussen, an analyst at DNB Markets.
"We expect that the Fed will keep the federal funds rate unchanged for most of this year, before hiking in December. There were only small effects on the 2-year Treasury yield after the release," he adds.
Image courtesy of DNB Markets.