USD flows: USD knocked lower by weaker US employment report
US emplyoment report only modestly weaker than expected, but weaker in all categories, JPY benefiting the most, but scope for USD losses elsewhere as well.
The April US employment report is generally on the weaker side of consensus, with the average earnings rise of 0.2% perhaps the most significant miss. However, payrolls were also a little below expectations at 175k, although there was a small an upward revision to the March numbers, and the unemployment rate rose to 3.9%. While these are all only modestly on the weak side of consensus, they are all on the weak side, so the negative USD reaction is unsurprising.
US yields are 10-15 bps lower and with European yields also being dragged lower it is unsurprising that the JPY has benefited the most from the weaker numbers, with USD/JPY now at its lowest since April 10. While the JPY is stronger against the EUR, EUR/JPY has only reversed the gains seen in the European morning, and EUR/USD has surfaced above 1.08 – also for the first time since April 10. Indeed, we are essentially back to April 10 levels across the board. From here, we do see some further downside risks for the USD across the board, but particularly against the JPY with yield spreads suggesting scope to the mid-140s. However, the positive equity market reaction to the data should also support the riskier currencies against the USD. AUD/USD could test the March high at 0.6667, while EUR/USD could reach the mid-1.08s. But evidence of weaker US inflation still looks necessary to trigger a clear USD downtrend across the board.