It was another good month for the US labour market in March, but despite an initial pop in the dollar, the markets are not buying into it.
The US dollar initially reversed all losses to trade back in positive territory for the day but these gains could not be sustained. Since then the volatility has continued but the market can’t seem to determine what this means. The move was consistent with what we’ve seen on a number of occasions, the initial reaction is as you’d expect for a positive report but this is quickly undone as the markets continue to reject the possibility that this will lead to a faster pace of tightening. The fact that the Fed effectively blinked first at the last meeting and brought its own forecasts more in line with the markets more bleak assessment has probably only encouraged this kind of action.
The report itself actually contained a lot of positives, a slightly better payrolls number than we were expecting, a very marginal negative revision to past payroll numbers and wage growth that exceeded market expectations, up 0.3% on the month. The only negative in the report – a rise in unemployment to 5% from 4.9% – was actually a positive in disguise in that it appears to have been driven by a rise in the participation rate to 63%, its highest level in two years.
All things considered, this is a solid report that should encourage the Fed to continue tightening but unfortunately, the market simply refuses to buy into it.
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