The fantastic NFP release has prompted the market to change expectations of future Fed rate cuts while supporting the US dollar ahead of the release of CPI inflation data.

The US Dollar briefly surged thanks to the release of Friday's expectations-beating Nonfarm Payroll (NFP) data but quickly receded again in short order. The US Dollar Index (DXY) stabilized above the 104.20s range in Asian session trading this Monday (8/April), while market participants recalculated expectations of an early Fed rate cut.

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Nonfarm payroll data posted an increase to 303k in the March 2024 period. The figure was much higher than 270k in the previous period, as well as dismissing the consensus estimate pegged at 212k.

Other US labor data details were equally excellent. The US unemployment rate declined unexpectedly from 3.9% to 3.8%. Hourly earnings growth increased 0.3% every month, in line with forecasts.

The figures signaled the resilience of the labor market, thus opening up the possibility for the Federal Reserve to keep interest rates high for longer. Following the data release, CME's FedWatch showed a decline in the odds from around 65% to just 50% for a Fed rate cut scenario in June. The majority now expect the Fed to start rate cuts in July.

"In the absence of a clear message from the Fed's speech, the market is focusing on recent data, where three payroll surprises and two consecutive CPI surprises have made it difficult for investors to discuss the cooling of the (US) economy and (Fed) rate cuts," Morgan Stanley analysts said in a note quoted by Reuters.

Market attention will next turn to the scheduled release of US CPI inflation data on Wednesday. If the data also outperforms market expectations like last month's CPI release, the US dollar could potentially rally further.

Various major currency pairs have now entered a consolidation phase. EUR/USD closed right at its opening price on Friday, then continued to circulate at 1.0840 at the time of writing. GBP/USD is also constrained to a fraction below the 1.2650 threshold.

USD/CAD printed a new high for the year on Friday, as Canadian labor data suddenly deteriorated. USD/JPY continued to fluctuate in a narrow range below the 152.00 threshold amid market concerns over Japan's intervention risk.

NZD/USD was pressured near the 0.6020s range ahead of the Reserve Bank of New Zealand (RBNZ) meeting on Wednesday. Market participants fear that the recent weakness in New Zealand's economic data will prompt the RBNZ to take a more dovish stance. Westpac analysts expect a "less dovish Fed and more dovish RBNZ" scenario to push NZD/USD back to the 0.59 range.