This week brought the decision from the Federal Reserve (Fed) and data from the US labor market. Both solidified the strength of the US dollar and the market is almost no longer expecting a rate cut in the US in March. Last Wednesday, Powell ruled out such a scenario, and the Non-Farm Payroll (NFP) report further crossed out the possibility of starting to ease monetary conditions in the following month.
Employment in the USA continues to grow faster than expected. In January, the number of non-agriculture jobs increased by 353 thousand compared to the previous month, marking the largest increase since January 2023.
Previously, the employment growth trend measured by the average six-month indicated a downturn. With strong data coming in from January and corrective measures (employment growth in December was significantly increased from 216 thousand to 333 thousand), the picture is now different. Since the summer of 2023, employment growth has stabilized at a high level of over 200 thousand. Remember, each month, around 100 thousand new individuals join the labor market, so the current level of job creation significantly exceeds this value. At the same time, this data is more consistent with strong economic growth of around 4 percent year-on-year in the second half of last year.
The Fed may likely pay attention to the significant wage hike. In January, they increased by 0.6 percent compared to the previous month. In year-on-year terms, the dynamics are at a 4.5 percent level, the highest value since February 2023.
Overall, the American job market remains very solid. These figures will likely be received by many as a hint that the US economy can avoid recession.
This week’s data does not support quick rate cuts in the USA. The market pricing for monetary policy easing by the Fed in March has been reduced to around 20 percent following the NFP report. There has also been a shift in the perception of the May decision, here the chances of a downward move on rates have decreased from over 90 percent to around 70 percent.
Łukasz Zembik Oanda TMS Brokers
