U.S. Payrolls Disappoint, but Fed Chief Powell Indicates Rate Hikes Would Continue

The U.S. Dollar index finished lower on Friday, but the actual U.S. Dollar closed mixed against individual currencies due to the various responses to the escalation of tensions between China and the United States and a weaker-than-expected U.S. Non-Farm Payrolls report.

June U.S. Dollar Index futures settled at 89.782, down 0.372 or -0.41%.

The Greenback fell against the safe-haven Japanese Yen and Swiss Franc, but rose against the export-sensitive Australian, New Zealand and Canadian Dollars. Interest rate-sensitive currencies like the British Pound and Euro gained against the U.S. Dollar.

Triggering a move into the safe-haven currencies were aggressive comments from China. On Friday, the world’s largest economy warned it would fight back “at any cost,” shortly after U.S. President Trump threatened to impose tariffs on an additional $100 billion in Chinese goods.

The comments also pressured the export-currencies. Traders were very reactive to comments from China’s Commerce Ministry spokesman Gao Feng who said the country will not hesitate to respond if the United States adds further tariffs. He also ruled out negotiations under these conditions.

Interest rate sensitive currencies like the British Pound and Euro finished higher versus the dollar as investors reacted to mixed economic news. Generally upbeat remarks on the economy from Federal Reserve Chairman Jerome Powell helped pressure the GBP/USD and EUR/USD, but bullish traders were more receptive to the U.S. payrolls report that showed fewer job gains than expected.

Overall, however, the U.S.-China trade dispute was main catalyst behind the price action in the Forex market.

U.S. Non-Farm Payrolls Report

The Bureau of Labor Statistics reported on Friday that non-farm payrolls rose 103,000 in March while the unemployment rate was 4.1 percent, falling well short of Wall Street expectations during a month where weather caused havoc on the jobs market.

Economists and traders were looking for a payrolls gain of 193,000 and the unemployment rate to decline one-tenth of a point to 4 percent. This number represents a huge drop from the upwardly revised 326,000 in February. January’s figure was revised down from 239,000 to 176,000.

The closely watched average hourly earnings figure rose 0.3 percent against estimates of 0.2 percent. This pushed up the annual rate to 2.7 percent.

U.S. Equity Indexes

The major U.S. stock index futures posted a volatile trade on Friday before settling sharply lower and near their lows for the session. Stocks were pressured by growing worries of a trade war simmering between the United States and China.

Stocks fell early in the session after President Trump threatened to impose additional tariffs on China, and China warned it would fight back “at any cost”.

Equities rallied shortly after the release of weaker-than-expected jobs data on the hope that it would slow down the pace of Federal Reserve rate hikes. However, stocks were driven to their session lows in the final two hours of trading after Fed Chief Jerome Powell indicated the central bank would continue hiking rates this year.