Downbeat US Jobs Data: Higher Rate Cut Possibility?

After the roller coaster ride from geopolitical tensions between the US and Iran, last Friday’s market-main focus was diverted to US month job data; Non-Farm Payrolls (NFP), Unemployment Rate & Average Hourly Earnings data.

According to the US Bureau of Labor Statistics, the US NFP report for the month of December only reported a total of 145K jobs created for the non-farm sector, falling below expectations of 164K and previous reading of 256K. The unemployment rate was able to maintain at record low 3.5%; however, wage growth slowed down its pace back to 0.1% from 0.3%. 

A lower number of jobs created added together with slower wage growth might indicate a more moderate spending activity for the region shortly. In cases with lower spending activity, inflation might be dragged down with it, warning the Federal Reserve (FED) that it may be time to introduce stimulus to keep inflation in line with the expectations of 2%. 

Further confirmation can be seen after this week’s release of US inflationary data, namely: Consumer Price Index (CPI) and Producer Price Index (PPI). The Fed previously praised themselves for cutting the cash rates, calling it appropriate to sustain their objectives while they did not rule out possibilities of a further rate cut this year. 

However, with ongoing political uncertainties and global economic slowdown, central banks around the world are still ready to further loosen their monetary policy for the year 2020, for example, the Bank of England (BoE) or the Reserve Bank of Australia (RBA). 

In terms of price, the dollar index made a significant comeback throughout last week before the release of US jobs data. The DXY, unable to break below its 96.00 handle, also denied a bullish reversal, is now trading back towards its 97.00 handle. 

The recent easing of geopolitical tensions and expectations of Phase One trade deal signing this week had since regained investors’ confidence towards the greenback. If the signing can take place this week, adding on with upbeat inflation data, the DXY will not hesitate to further its upward momentum.