NFP opens the door to further USD gains

• US Non-Farm Payrolls are more than good enough.
• The Fed’s unwillingness to cut interest rates has been vindicated.
• In currency markets, the greenback has more room to rise.

America is hiring: 263K jobs were gained in April, above 185K expected but closer to the ADP NFPprivate sector number of 275K. Wages came out at a tad below expectations with 0.2% MoM and 3.2% YoY, both 0.1% below expectations. Nevertheless, the pace of salary gains is satisfactory, and above the previous frustration average of 2.5%.

The other figures were balanced with the unemployment rate dropping to 3.6% but on top of falling participation: 62.8%. For stock markets, it is a Goldilocks report that reflects a robust economy. And what does it mean for currencies?

Powell can smile, and so can the USD

The data are satisfactory for the Fed and its dual mandate. The labor market continues shining, as it did in recent years and proving once again that February’s disappointing figure was only a blip.

The substantial and steady job gains show that the economy is marching towards full-employment, one of the two mandates. The picture is positive even when because participation remains below pre-crisis levels.

The second mandate is inflation, which was in focus earlier this week. The Core PCE disappointed and the prices component in the ISM Manufacturing PMI also showed a deceleration in prices. The Fed defied market expectations by saying that the slowdown is only transitory and refusing to signal a rate cut.

And also here, the increase in wages is encouraging. Sure, the correlation between pay and price pressures is not what it used to be, but if there is one data point in the employment report that is most related to inflation, it is this one.

Overall, the NFP vindicates the Fed’s patient stance on raising interest rates. There is nothing in this publication to indicate that a rate cut is warranted.

At this background, the US dollar has more fuel to rocket higher, at least until the ultimate inflation test which is the consumer price index report next Friday.