US dollar and yields suffer on payrolls miss, high unemployment

Key points

• April Nonfarm Payrolls fell to 175k, below expectations
• The Unemployment rate rose to 3.9%
• EUR/USD hit 1.0800 after the data release
• The chance of a September rate cut rose to ~70%*

Probabilities calculated using the CME FedWatch tool

Nonfarm Payrolls fall to 6-month low at 175k

April's Nonfarm Payrolls reported a significant undershoot, adding only 175,000 jobs against an expected 243,000, marking its first miss of 2024 and the lowest in six months. This shortfall is the first major sign of weakness in the US labor market this year, prompting price action and speculation across asset classes.

Unemployment rate rises to 3.9%

Against expectations that it would remain at 3.8%, the unemployment rate edged up to 3.9%, marking its second unexpected rise in three months. This uptick further augments worries about a longer-term cooling employment landscape in the US. However, the Fed's sustainable target is around 4%, so this miss to the upside is still well within a healthy range.

US dollar slides on weaker data

Following the release of weaker employment data, the US dollar experienced a downturn, with EUR/USD reaching 1.08 and AUD/USD seeing a near 1% increase to above 0.6600. This move compounds on weakness felt from Wednesday's FOMC meeting, helping major currencies hit key price levels against the dollar.

10-year yield sank below 4.5%

In reaction to the Federal Reserve's recent meeting and subsequent weak payroll data, Treasury yields declined, with the 10-year note falling below 4.5%, down from April's highs above 4.7%. This decline across the yield curve signals growing investor caution and expectations of lower rates from the Fed this year.

First Fed rate cut could come in September

Fluctuations in interest rate projections have culminated in a nearly 70% likelihood of the Federal Reserve enacting a rate cut at its September meeting, a significant jump from odds earlier in the week that were below 50%*. This shift indicates evolving market expectations in response to recent economic data. If a September rate cut occurs, it would still be possible to attain 2-3 cuts this year. Lower rates could have major implications on the US dollar as yield for holding the currency lowers and demand could weaken.

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