Weakest NFP Print in Two Years Sinks Dollar, Lifts Pound and Yen

Talking Points:

- December NFPs miss expectations solidly, stoking speculation that .

- British Pound and Japanese Yen benefit the most on weak US Dollar.

- US 10-year Yield slumps towards 2.880%, the lowest rate in three weeks.

The December US labor market report was widely anticipated to be the cherry on top of a modestly strong 2013 for the US economy. The economy had been improving to the point that the Federal Reserve began to wind down its QE3 program at its December18 meeting, by $10B/month (to $75B). However, the worst Nonfarm Payrolls report in two years has tempered budding enthusiasm.

Here’s the data hurting the US Dollar:

- Change in Nonfarm Payrolls (DEC): +74K versus +197K expected, from +241K (revised higher from +241K).

- Change in Private Payrolls (DEC): +87K versus +200K expected, from +226K (revised lower from +226K).

- Unemployment Rate (DEC): 6.7% versus 7.0% expected unch.

- Participation Rate (DEC): 62.8% from 63.0%.

Weakest_NFP_Print_in_Two_Years_Sinks_Dollar_Lifts_Pound_and_Yen_body_Chart_1.png, Weakest NFP Print in Two Years Sinks Dollar, Lifts Pound and Yen

Market participants are putting this data on the side of no additional QE3 tapering, at least in January based on the ‘gut’ reaction. Initially, the US Dollar was perked higher on the improvement in the headline Unemployment Rate, but the rest of the data provoked a head fake. Considering that the Participation Rate fell to its lowest level since 1978, the drop in the Unemployment Rate looks rather hollow.

USDJPY 1-minute Chart: January 10, 2014 Intraday

Weakest_NFP_Print_in_Two_Years_Sinks_Dollar_Lifts_Pound_and_Yen_body_x0000_i1028.png, Weakest NFP Print in Two Years Sinks Dollar, Lifts Pound and Yen

Charts Created using Marketscope – prepared by Christopher Vecchio

The volatility in underlying yields was evident given the sporadic price action of various US Dollar pairs after the report. The USDJPY, for one, remained lower, trading from ¥105.06 to as high as 105.29, then dipping to as low as 104.18, before settling back at 104.64.

GBPUSD 1-minute Chart: January 10, 2014 Intraday

Weakest_NFP_Print_in_Two_Years_Sinks_Dollar_Lifts_Pound_and_Yen_body_x0000_i1029.png, Weakest NFP Print in Two Years Sinks Dollar, Lifts Pound and Yen

Charts Created using Marketscope – prepared by Christopher Vecchio

Likewise, the GBPUSD benefited from the weak US Dollar. The pair traded up from a low of $1.6379 to as high as 1.6495, before settling back at 1.6456 at the time this report was written.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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