- US employers hired 175,000 workers in April, compared to estimates of 243,000.
- US wages increased by a smaller-than-expected 3.9% annually.
- The ISM services PMI fell to 49.4, indicating a contraction in business activity.
Currency futures surged on Friday as the dollar plunged after a poor jobs report. The report revealed a deterioration in the labor market that led to an increase in Fed rate cut expectations. At the same time, data from the US showed a decline in service sector activity, weighing on the dollar.
US employment data (Source: Bureau of Labor Statistics)
US employment growth slowed more than expected in April, and annual wage gains eased. Employers hired 175,000 workers in April, compared to estimates of 243,000. Meanwhile, wages increased by a smaller-than-expected 3.9% annually. Smaller wage increases mean weaker consumer spending power, which puts downward pressure on inflation.
Finally, the US Labor Department report showed an increase in the unemployment rate, which was a surprise. The indications of softness in the labor market were a big relief for the Fed. However, policymakers will likely wait for a continued downtrend to gain confidence that there will be an equal decline in inflation. On the other hand, investors gained confidence that the Fed will cut rates at least twice this year. Moreover, markets are fully pricing in a cut in November.
At the same time, data revealed that the US services sector cooled in March, further indicating weaker economic activity. The ISM services PMI fell to 49.4, indicating a contraction in business activity. It missed forecasts for an increase to 52.0.
The downbeat data from the US at the end of the week boosted currency futures, especially the yen, which was already in a stronger position. Notably, the yen had its best week since December 2022 due to suspected Bank of Japan interventions on Monday and Wednesday. Therefore, the dollar’s weakness added fuel to its rally.
Japanese authorities have drawn a line in the sand at $160 and will likely do everything to keep the yen below this level. However, experts believe the intervention has only bought them time since fundamentals still point to a weaker yen.
Meanwhile, the Canadian dollar was an outlier as it reversed its gains on Friday, ending the day down. This came after a Reuters poll revealed that economists lowered expectations for a stronger CAD this year due to the divergence in rate cut outlooks between the Fed and the Bank of Canada.
