Incredibly strong report from the American labor market. The dollar gains, stocks fall

The icing on the cake of this very eventful week was the report from the US labor market. It surprised the financial markets incredibly, hence such a quick and violent reaction, especially in the quotations of the US dollar.

Non Farm Payrolls with a bang

Back to the data. The unemployment rate fell to 3,4%, the lowest level since 1969. However, the shift in non-farm employment was the highlight of today's publication. +517k new jobs, with the consensus of 185 thousand. In addition, a strong upward revision of previous data.

In sequence:

• Total payroll employment rose by 517,000 in January and the unemployment rate fell to 3.4 percent, the lowest since 1969, the US Bureau of Labor Statistics reported today.
• Employment growth was widespread in January, led by increases in leisure and hospitality (128), professional and business services (82) and healthcare (58).
• Employment also increased in the government sector (74), partly reflecting the return of workers after the strike.
• Growth was also recorded in retail trade (30K), construction (25K), transport and storage (23K) and manufacturing (19K).
• There were also major revisions - the increase in employment in November and December was a total of 71. higher than previously reported.

Market reaction after NFP. What is the dollar exchange rate?

The US dollar seems to be strengthening after the release of surprising data for investors, and the EUR/USD rate fell below 1,0840. The GBP/USD rate went down, falling to 1,2125. On the other hand, the USD/JPY pair is climbing up, testing around 130 yen per dollar.

The situation in the valuation of the Fed's further actions also seems to be changing. While the market was convinced that we would only have one more hike of 25 basis points at the next meeting, then there will be two cuts at the end of the yearit's being revised now. FRA 9×12 rates for USD jumped from 4,75 to 4,90 after the data. An increase of 15 basis points is a decrease in the probability of one rate cut at the end of the year.

With such a strong labor market, the Fed can maintain restrictive policy longer and more confidently than the markets believed after Wednesday's press conference. After all, the goal of the Fed may be positive real interest rates, not lowering them as inflation falls. A strong labor market can still help with this.