The Federal Reserve will be under pressure to provide more support to US credit markets. Global risk will provide some dollar protection
US non-farm employment fell by a further 63,000 in February after a downwardly-revised 22,000 decline for January. This was the weakest figure for close to five years and there were further falls in manufacturing and construction employment. Most sectors were weak which suggests a wider downturn and this will maintain weak sentiment towards the currency.
There was a decline in the unemployment rate to 4.8% from 5.0%. The drop, however, reflected a sharp drop in the workforce as discouraged workers gave up looking for jobs while recorded employment fell which reinforced the weak data.
The data will reinforce recession fears in the US economy and maintain pressure for further Fed support measures. Governor Fisher warned the markets not to expect Fed action before the next scheduled meeting and he also stated that recent policy would not continue. The Fed did, however, announce that the auctions to boost market liquidity would be increased and widened in scope to help ease money-market tensions. This may curb immediate pressure for lower interest rates, but markets continued to price in a 0.75% Fed Funds rate cut in March with some speculation over a full 1.00% rate cut.
The dollar found some support weaker than 1.54 against the dollar in choppy trading, but conditions will remain very nervous in the short term