Data from the U.S. labor market hasn't had as big an impact on financial markets as today's has in a long time. Investors already know that the better the job market is, the less the Fed will be willing to help them.
The U.S. economy added 379,000 jobs in February 2021, following an upwardly revised increase of 166,000 in January, compared to market expectations of 182,000. Thanks to the easing of restrictions and a decline in coronavirus infections, as well as the rapid introduction of vaccines and continued government support, the job market has improved. Leisure and hospitality added the most jobs, with fewer in temporary services, health care and social assistance, retail trade, and manufacturing. Employment declined in state and local government education, construction, and mining. Nevertheless, the economy is still about 9.5 million jobs short of its February 2020 peak. Thus, the labor market still has a long way to go before it fully recovers from the shock of the pandemic.
As a result, the sell-off in U.S. bonds accelerated, with yields rising above their one-year high of 1.6 percent. Federal Reserve Chairman Jerome Powell said Thursday that the economic recovery may temporarily boost inflation and that the U.S. economy will begin to see more employment over the next few months. Powell noted, however, that the central bank is still far from its inflation and employment targets, and any changes to the Fed's QE would require real progress toward those goals. The recent rally in bond yields was supported by the prospects for a rapid economic recovery. These were co-founded by coronavirus vaccines and further fiscal support from the government, which may be voted on as early as this weekend.
In the currency market, the dollar accelerated its gains, with EUR/USD nearing 1.1900, its lowest level since November 2020. In turn, USD/JPY and USD/CHF prices soared, as did USD/PLN. The President of the National Bank of Poland said that there is no chance of interest rate increases in Poland at the moment and the market expects them too much. USD/CHF has already climbed to 0.93, USD/JPY exceeded 108.50 at one point and USD/PLN tested 3.86.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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