Dollar Retreats on Profit-Taking, How Will Central Banks Drive Markets

We have seen the release of the US labour market data for February last Friday.

The headline non-farm payrolls figure rose by 235K in February, beating expectations of 190K. The previous reading in January was revised upwardly to 238K, from 227K.
The unemployment rate dropped slightly to 4.7% in February, from 4.8% in January, which was in line with expectations.

The average hourly earnings (YoY) rose by 2.8% in February. The previous reading in January was revised upwardly to 2.8%, from 2.5%.

The average hourly earnings (MoM) rose by 0.2% in February, which was weaker than expectations of 0.3%. The previous reading in January was revised upwardly to 0.2%, from 0.1%.
The labour force participation rose slightly to 63.0% in February, from 62.9% in January.

In terms of sector breakdown, construction adds 58,000 new jobs, seeing the most in a decade. Manufacturing grew by 28,000, seeing a 3-year high. Other sectors with noticeable job gains include professional and business services (37,000), private educational services (29,000), health care (27,000) and mining (8,000).

As a whole, the US labour market data for February outperforms expectations. The 3-month NFP average figure was around 199K, which was above the 6-month NFP average number of 189K, indicating the US labour market condition has remained solid.

The unemployment rate has seen a continuous decline from 9.4% in early 2011, to the latest figure of 4.7%. The improvement in the unemployment rate has pushed the average earnings up since early 2015. The labour force participation has also seen an uptrend since the beginning of this year.

7 out 10 FOMC members, including the Fed doves Yellen and Brainard, have made a hawkish comment lately. Moreover, the US labour market data for February outperforms. We can expect a probable rate hike in March. Per the CME’s FedWatch tool: the current probability of a rate hike in March has jumped to 93% after the release of the labour market data last Friday.

Contrasting with the better-than-expected US labour market data for February, the dollar index plunged more than 70 points, hitting a one-and-a-half-week low of 101.16 after the release of the data, due to profit-taking pressure. As markets have priced in the expectations for a March rate hike since February.

Gold spot rebounded last Friday after hitting the lowest level of 1194.91 since 31st January, breaking the significant resistance level at 1200. EUR/USD surged around 100 points post the data, touching the significant resistance level at 1.0700. AUD/USD rebounded from the psychological support line at 0.7500.

The economic data for today is thin. However, there will be four central banks announce interest rate decisions and monetary policies in turns this week, including the Fed (18:00 GMT on Wed.), the Bank of Japan (02:00 GMT on Thu.), the Swiss National Bank (08:30 on Thu.), and the Bank of England (12:00 on Thu.). We can expect greater market volatility this week.

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