Last Friday’s soft NFP report added further weakness to the USD rate after the FED removed rate hike fears on Wednesday, which gave the USD the first knock. However, the buck is holding better today, trading in a tight range against most major currencies, which shows that the negative sentiment from last week’s event might be over.

USD Index DXY Daily Chart – The Decline Seems to be Over

The US non-farm payrolls (NFP) numbers fell short of expectations, recording 175,000 jobs added compared to the anticipated 243K, while the unemployment rate ticked higher to 3.9% missing projections of an unchanged rate at 3.8%. Additionally, average hourly wages surprised to the downside, with the year-on-year growth rate ticking down to 3.9% versus the expected 4.0%, and the month-on-month figure at 0.2% versus the projected 0.3%.

Overall, the report was soft but not catastrophic. Consequently, the market increased the probability of rate cuts, with futures indicating approximately two rate reductions by the end of the year, with the first expected in September. This may represent the peak of hawkish sentiment in the short term, with even Fed Chairwoman Bowman moderating her tone in response to the labor market report.

Weaker US Services ISM for April

The ISM Services PMI data, released after the NFP report, added some uncertainty to the picture. The index missed expectations by a significant margin and fell back into contraction territory for the first time since December 2022. However, the price paid sub-index increased to 59.2 compared to the expected 53.4.

Unfortunately, this survey has been sending some mixed signals this cycle. Despite the increase in the price paid sub-index, with a weaker labor market and declining wage growth, it’s challenging to anticipate a genuine resurgence in inflation. In summary, the data didn’t provide clear evidence for either side, although it did help momentarily alleviate hawkish sentiments.

USD/JPY Live Chart