Dollar Crippled By Highest Unemployment Rate in 4 Years

Non farm payrolls printed a better than expected -49K versus -60K projected but the real shocker of the report was the sharp rise in unemployment rate from 5.1% to 5.5% - the highest reading in nearly four years since October of 2004. The rise in unemployment reflected the influx of teenagers into the workforce who are unable to find jobs and indicates the weakenss of the US economy to absorb these low wage entrants.

The report suggests that the Federal Reserve policy makers will continue to find themselves in a challenging environment. Despite Chairman Bernanke’s promise to keep rates steady at 2% the Fed may be forced to lower them further if the labor situation continues to deteriorate. Construction, manufacturing and trade and transport lost more jobs this month with manufacturing employment shrinking by -49K. On the service side business services suffered a loss of -39K with many more job cuts likely in the next several months from the financial sector. The only sector to perform well was education and health services which gained 54K jobs. Perhaps the only bright spot in today’s labor data was the increase in hourly wages which rose at 3.5% vs. 3.4% projected.
The next key data point for the US economy will be Retail Sales due Thursday June 12th at 12:30 GMT. Given the fact that employment has suffered its fifth consecutive month of losses, the US consumer is likely to retrench spending. The EURUSD spiked immediately to 1.5700 on the news, but has since come off slightly from its highs. For the time being sentiment is heavily skewed in euro’s favor, especially after yesterday uber-hawkish comments by ECB President Jean Claude Trichet. If next week’s economic data proves as disappointing as today’s NFP – the EURUSD may mount another challenge on its recent record highs.