Much ado about nothing? – Commerzbank

Why is our work as a currency analyst so interesting? The market often likes to focus on different events that it finds interesting and relevant to exchange rates. This is why otherwise boring facts like statistical reviews, which are usually of interest only to the detail-obsessed and otherwise can’t get anyone out from behind the stove, suddenly become the focus of everyone’s attention and can even move the market. As is the review of US labor market data, which is on the agenda and on everyone’s lips today, notes Antje Praefcke, FX analyst at Commerzbank.

US labor data could shake up the market

“Once a year, survey-based labor market data are revised. The reference month is always March. Predictably, wage data from last summer through March 2024 slightly overstated job creation. As our experts estimate, instead of an average of 246 thousand jobs, only 190 thousand new jobs could have been created per month, i.e. a total of about 700 thousand more jobs few extrapolated for the year in question.”

“This would be the biggest revision since 2009, meaning the financial crisis, which is why the market is so focused on it. So if the review shows that the labor market data has been overstated since last summer, the market may feel more confident in its assumption that the Fed will have to cut the key interest rate quickly and sharply because the labor market has already cooled for longer. and sharper than everyone previously assumed.”

“In the event of a significant downward revision, consequential USD losses could be expected. But, we continue to expect the US economy to avoid a recession and expand “just” slower than the long-term trend over the next few quarters. Of course, if the US growth advantage turns out not to be as strong and sustainable as previously thought, there are certainly reasons why the USD should no longer enjoy this advantage in the medium term, or should lose some of it . But the massive, panicked rate cuts and dollar sell-offs are unwarranted.”