For those looking for the Federal Reserve to lower interest rates in August, they may have to wait a while longer. This morning, US non-farm payrolls increased by 97k during the month of Feb, which was pretty much right in line with expectations. Revisions remained the name of the game as January payrolls were notched up by 37k.
The unemployment rate also dipped back to 4.5 percent from 4.6 percent. It seems that the reliability of the ADP survey still remains in question. Even though their private sector forecast was only off by 1k (58k in NFP vs 57k in ADP), the directional revision to the January figure was completely off. The sentiment after the ADP report earlier this week also contrasts significantly with the sentiment in the market today. Instead, the other reports such as the ISM, Hudson and Monster.com Employment indices proved to be more reliable. Traders were actually looking for a much weaker number with the CME derivatives auction settling at 75.5k this morning. The dollar has seen the most strength this morning against the Yen, while its strength against the Euro and British pound has been limited. Carry traders are taking USD/JPY back higher, and that is boosting EUR/JPY and GBP/JPY. The Yen is driving market activity again by holding the Euro and GBP back from weakening against the dollar. Further dollar strength could be limited however as the US economy still faces problems in the sub-prime lending sector. Furthermore yesterday's weaker sales at Wal- Mart suggests that next week's retail sales numbers could also face downside risk - which would be the second month of lackluster consumer spending.
Meanwhile, the trade deficit narrowed in the month January. Lower oil prices are sure to have helped. A slight upward revision to the deficit the prior month and the strong payrolls number will offset any dollar implications from that report.
