Market Brief: US job market crushes expectations, lifting dollar

The US job creation engine unexpectedly accelerated and the unemployment rate fell in March, pointing to resilience in the American economy as the war with Iran got underway—and further reducing the odds on an imminent course of rate cuts from the Federal Reserve. According to the Bureau of Labor Statistics, 178,000 jobs were added in the month—representing a substantial overshoot relative to the 65,000-consensus forecast—while the previous two months were revised down by a total 7,000 positions, bringing the three-month average pace of job creation up to 68,000, from 6,000 ahead of the update. The unemployment rate fell to 4.3 percent from 4.4 percent in February, and average hourly earnings climbed 0.2 percent month-over-month—a slowdown from the 0.4-percent pace set in the prior month, but still amounting to a solid 3.5-percent advance in year-over-year terms.

The dollar is adding to its gains and Treasury yields are climbing across the policy-sensitive end of the curve as traders trim bets on rate cuts this year. Currency markets more generally are experiencing thin liquidity conditions this morning as the Good Friday holiday shutters major financial centres across the globe, and trading ranges are tight. The euro and British pound are struggling to make headway after moving higher earlier in the week, the Japanese yen is holding just below the 160 threshold against the greenback as traders watch for signs of intervention activity from the central bank, and the Canadian dollar remains on the weaker end of the spectrum amid persistent risk worries.

Geopolitical developments are likely to remain in the driving seat for markets early next week, but with labour markets holding up and price pressures showing signs of intensification, it is difficult to imagine a scenario in which investors pivot toward putting an aggressive series of rate cuts back on the table for the Fed. Positive rate differentials and still-solid safe-haven demand should keep the dollar well-supported for now.

*Please note: Coverage will resume on Wednesday, April 8

Market Overview

Notes: DXY: Dollar index, ON: Overnight movement, DMA: Daily Moving Average, Pivot points are calculated on a one-month basis, 3-month and 10-year spreads are against USD, Implied V.: implied at-the-money option volatility

Economic Calendar