Dollar Bruised By Weaker NFP

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Market Drivers for August 2, 2013
NFP misses sending dollar lower
Aussie PPI very weak unit breaks 8900 but rebounds
UK PMI Construction soars 57 vs. 51.6 eyed
Nikkei 3.29% Europe 0.07%
Oil $107/bbl
Gold $1287/oz.

Europe and Asia:
AUD PPI 0.1% vs. 0.5%
CHF SVME PMI 57.4 vs. 53.1
EUR Euro-Zone PPI 0.0% vs. 0.1%
GBP Construction PMI 57 vs. 51.6

North America:
USD Change in Non-farm Payrolls 162K vs. 184K
USD Unemployment Rate 7.4% vs. 7.5%
USD Personal Income 0.3% vs. 0.5%
USD Personal Spending 0.5%
USD Factory Orders 1.5% vs. 2.3%

The dollar dropped in North American trade today reversing its recent gains after the NFP report missed expectations printing at 162K jobs versus 184K forecast as traders pared their expectations for a Fed taper in September.

With market primed for a blockbuster number, today’s just average results were a clear disappointment to dollar bulls. Not only were total jobs created much weaker than the 200K whisper number, but the underlying data was weak as well. Average hourly earnings declined by -0.1% versus 0.2% forecast and in addition personal income rose only at 0.3% rate versus 0.5% anticipated.

The picture from today’s data suggests that the pick up in economic activity has yet to translate into major wage gains which in turn will keep consumer demand muted for the time being. Under such conditions the Fed would be hard pressed to curtail its accommodative stance, although many of its critics suggest that its endless accumulation of UST and MBS assets is creating a dangerous imbalance in the financial system.

In either case, today data dump certainly cast some doubt on the idea that the Fed would unequivocally begin to taper its QE program in September. Traders will now scrutinize every key US economic report from now until after Labor day looking for signs of improvement or deterioration in conditions on the ground.

The dollar clearly took it on the chin in the aftermath of the report, but its declines have been limited. USD/JPY dropped through the 98.00 level but is now consolidating just below the figure. Euro and cable meanwhile continue to have a difficult time clearing 1.3300 and 1.5300 respectively. However, with today’s clearly causing a rethink in the markets some further dollar weakness may be due and those levels could fall next week, especially if data from Europe continues to impress.

Boris Schlossberg
Managing Director

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