Last week was packed with central bank activity, with the Fed holding interest rates unchanged exactly as we previewed the event, and the BoJ's shocking stunner of doing absolutely nothing (despite heightened expectations of more monetary easing) has sent the U.S. dollar into a free fall, testing its May 2015 lows.
The focus this week will be on the American jobs market where the BLS is set to release the April Non-farm Payrolls (NFP) report this Friday at 830am EST. This puts all the attention back on the greenback, which has already been capturing headlines from financial media all across the world.
The U.S. dollar depreciated against major currencies such as the Japanese yen, euro, and pound sterling after the Federal Open Market Committee (FOMC) decided to hold rates unchanged in April. Last Wednesday saw a "hawkishly-dovish" Fed. Adding insult to the dollar injury was Thursday's shocking inaction from the Bank of Japan (BoJ) as the Japanese central bank too decided that waiting for more data to measure the true impact of its earlier quantitative easing efforts was a prudent course of action.
The result was a widespread capital flight from the greenback, which heavily benefitted most other major currencies.
Market participants sold the dollar as the Fed continued its cautious stance; the June FOMC event only has a 11.3% of implied probability of a rate hike, according to the CME's FedWatch. The same method of analysis implies a 24.2% and 36.1% likelihood for a July and Septemer hike, respectively.
Even if we do get positive employment data this Friday, the market believes that it will only have a small impact on the Fed's decision in June, unless wage inflation picks up.
Employment remains the strongest pillar in the "recovery" of the American economy, but wage growth has been low. Questions about the quality of jobs available have also surfaces, alluding to the the massive additions of part-time jobs relative to full-time ones.
U.S. initial jobless claims are at 43-year lows but consumers are not spending. Regardless, the consensus expectation is for an addition of 200,000 new jobs to the U.S. economy, down from March's 215,000 print. The U3 unemployment rate is expected to hold firm at 5.0%, but the focus will almost certainly be on wage inflation.