Largest rise in the US labour Force Since 1983, but Dollar Volatile as Wage Data Disappoints

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The Pound-to-Dollar exchange rate saw volatility ahead of the weekend on the release of US employment and wage data which gave off mixed messages to markets.

The Nonfarm Payrolls component of the Employment Situation Summary read at 313K for February versus 200K expected by markets, and January's numbers were upgraded to 239K.

This is the largest rise in the US labour force since 1983.

But as we warned in our preview, the employment number was always likely to play second-fiddle to the data concerning wages, as has been the case for some time now.

The average hourly earnings index for February rose a paltry 0.1%, less than the 0.2% forecast and the 0.3% registered in January.

The Dollar fell across the board on the data's release with the Pound-to-Dollar exchange rate spiking to a day's best at 1.3840 before fading back down to 1.3828 suggesting markets are actually unsure of how to play these contradictory signals.

The Euro-to-Dollar exchange rate peaked at 1.2321 before fading back into the red at 1.2281.

"February data confirmed our suspicion that last month's strong wage figure was largely an illusion, with a tame 0.1% gain in the latest month taking the annual rate back close to the average of the past couple of years (2.6% vs consensus of 2.8%). That softer wage figure came despite signs of very strong job growth during the month," says Andrew Grantham with CIBC Capital Markets in Toronto.

The wage data suggests inflationary forces are unlikely to receive a sizeable boost from rising wages, which in turn suggests there is little imminent chance of the US Federal Reserve quickening the pace at which they raise interest rates during 2018 and 2019.

"With average hours also rising alongside the strong employment print, today's figures confirm that the US economy continues to grow strongly. However, the wage numbers should allay fears of a quick pick up in inflation, and as such we still see the Fed hiking interest rates three times this year ie. the same pace as that seen in 2017," says Grantham.

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