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Job Losses Soar And U.S. Dollar Follows: Here’s Why

Published 04/03/2020, 04:27 PM
Updated 07/09/2023, 06:31 AM
It has been another good week for the U.S. dollar. The greenback traded higher against all of the major currencies on Friday despite abysmal non-farm payroll numbers. According to the latest report, the hemorrhaging in the labor market started before any state issued stay at home orders. In the first two weeks of March, U.S. businesses shed 701,000 jobs, 700% more than economists anticipated. While everyone believes that millions of jobs have been cut in the past few weeks, no one expected such a shockingly large number this early. Economists were only looking for payrolls to fall by 100,000 especially after ADP reported only 27,000 reduction in private payrolls. However, the leisure and hospitality industry accounted for more than half of the job losses as businesses began to cancel conferences and meetings in late February. The unemployment rate jumped to 4.4% as the household survey reported a 3-million decrease in employment. Average hourly earnings increased but with reports of non-furloughed workers taking pay cuts, that improvement will evaporate quickly. Service sector activity also slowed with the non-manufacturing ISM index falling to 52.5 from 57.3 In March but this number was much better than expected (the forecast was 43). 
 
Stocks traded sharply lower but the greenback continued to draw its strength from risk aversion. There may be 257,773 COVID-19 cases in the U.S. but the numbers in Spain and Italy have topped 110,000 and parts of Asia where it seemed like the virus was contained are now reporting new cases and resorting to stronger lockdown measures. There is a growing fear that there will be new flareups abroad along with a deepening economic crisis.
 
In the U.S., everyone is looking for data to worsen. If March payrolls were this bad, one can only imagine how ugly the April figures will be. We could be looking at non-farm payrolls falling by the millions. According to jobless claims, approximately 10 million people filed for unemployment benefits at the end of March. The whole country did not go into full lockdown mode until the middle of the month and with the President extending federal distancing guidelines through the end of this month, more Americans will be out of work for longer periods of time. We won’t see the true extent of COVID-19 impact on the U.S. economy until next month. The only major U.S. economic reports on next week’s calendar will be inflation data and the FOMC minutes. All of these reports should be negative for the dollar as the sharp decline in oil prices and the strong dollar could drive inflationary pressures lower. The FOMC minutes will highlight the central bank’s recent easing measures and their willingness to do more.
 
Sterling sold off the most on Friday on the back of weak PMIs. The service sector index dropped to 34.5 from 35.7, while the composite index fell to 36 from 37.1. The country’s coronavirus death count rose by the biggest daily amount yet and their delayed response could lead to a bigger social toll. The manufacturing index hasn’t seen a big decline but its only a matter of time before it will. The UK will most certainly be one of the countries hit the hardest by COVID-19. Its number eight on the list now for confirmed cases. EUR/USD extended its slide for the fifth straight day on downwardly revised PMIs.
 
The Australian and New Zealand dollars also extended their slide. China reported stronger PMIs but investors shrugged off the reports as they are measured against the prior month. Australia’s construction PMI index fell further while the services and composite reports were revised lower. Investors shrugged off the increase in retail sales as spending will certainly contract in March and April. Although it will be impossible for Australia’s economy to recover before the rest of the world, there’s early evidence that the country’s curve is flattening. The RBA meets next week and while no changes are expected, the central bank’s dovish bias will remain intact. In contrast, thanks to a strong recovery in oil, the Canadian dollar experienced only minor losses. USD/CAD will be in focus next week with IVEY PMI and Canadian labor market numbers scheduled for release.
 

Latest comments

hello what about Gbpusd
yeah babe
Awesome , thanks Kathy
I think non-farm payroll numbers make markets desperate, eapecially for product or services prociders. Because the numbers could be higher in April, entities now are trying to transfer current asset into cash to cover current debt. This accelerates the lack of greenback in a short time.
The us Dollar index is going to 120 minimum guys... look at the yearly chart cup and handle
Logic dictates the dollar will collapse as the economy comes back online and all those horded dollars flood the market.
i hope gbp/joy bullish next trading on monday
It’s not clear from your article how dollar will be affected by the weakening economic climate. I’m interested in your opinion on the QE dollar supply flooding effect. Shouldn’t dollar go down when supply of dollar currency increases? Would it negatively affect key trading currencies?
I am expecting GBP/NZD bearish next week.
I wish GBP-USD bullish nextweek 😃. thanks for review.
Convert most of your free cash balance into USD and keep only a small sum of local currency just in case you need to rush to panic by toilet paper.  lol.
Good news or bad bad news USD is still going up!   When thing get worst need more USD just in case.
From my perspective, the USD is soaring because the majority of debts (sovereign and corporate) are denominated in dollars. When *******hits the fan, everyone scrambles to cover their debts, which they need dollars to pay. It's also a positive feedback loop because as the dollar rises, it makes everyone that much more desperate for dollars because their debts are ballooning, in relative terms.
The author wrote: “... All of these reports should be negative for the dollar...” but didn’t elaborate or actually explain why it had been positive instead.
the dollar soaring in a situation where you have huge unemployment and zero rates is out of order. gold should be way higher. something is clearly not right here
It's not 1940
This article didn’t explain WHY the dollar has risen in spite of job losses, as the heading suggested...
Thank You!
who is the puppet master that's keeping usd artificially higher? that's the question.
Just one word from puppet master Trumpt and it will all come crashing down (or up even higher)!! It's a game they play to line their pockets
The explanation: ? Fear.
Hi All
how could the dollar soar when they just keep printing and handing out with interest rates at zero. The dollar has no value if there is little to no cost to borrow. Is everyone on drugs?
Currencies trade in pairs or in the DXY case mostly Euro and JPY. There is your answer.
Dollar shortage for emergent markets which highly need them to serve their usd debt so hight demand keeps a high valuation.
I didnt understand how this article explained “why” the dollar is soaring.
Its like reading a bad summary of the book. Tells you all the nuanced detail but didnt answer any of your question. Why was there a correlation between unemployment and dollar? Stop parroting news parrot
Dont be so rude
Well she’s working from home
still unclear why greenback is higher against major currencies.. ilogically logical!
Because most retail traders were short! Forget fundamentals; focus on options chain - that derives the market :)
I accidentally hit thumb down intending thumb up! I had same comment. Maybe it got edited out. I think answer is that bad as things are the dollar is still considered safe. I think that has to be questioned as we lurch toward fourrh spending bill.
Forget retail traders, they are nothing. The real matter is that, believe it ir not, the other currencies, the other 6 nations in the Dollar Index, are way wirse off than the USA.
My Analysts?thank you Kay!!!
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