Yen Surges as Slower US Job Growth Fuels Rate Cut Hopes

The Japanese yen surged to a three-week high against the US dollar in New York trading on Friday, following the release of the April US jobs report, which showed slower-than-expected growth. The report triggered speculation that the US Federal Reserve may delay interest-rate cuts.

Why this matters: The US jobs report has significant implications for the global economy, as it influences the Federal Reserve's monetary policy decisions, which in turn affect interest rates and economic growth worldwide. A delayed rate cut could have far-reaching consequences for investors, businesses, and consumers, making it a critical indicator to watch.

The US economy added 175,000 jobs in April, below economists' expectations of 240,000. The unemployment rate ticked up to 3.9%, and average hourly earnings rose 0.2% from the previous month and 3.9% from a year ago, both below consensus estimates. The news was seen as a positive sign by Wall Street investors and Federal Reserve Chair Jerome Powell, as it indicates that the labor market is cooling, which could help bring inflation back to the Fed's 2% target sustainably.

George Mateyo, chief investment officer at Key Wealth, stated, "Today's employment report was weaker than expected, the first material 'downside surprise' in over two years. Yet the weakness was not so weak to suggest that the labor market is rolling over." The slowdown in wage growth is seen as a positive sign for the Fed's inflation fight.

The news led to a surge inmarkets, with the Dow Jones Industrial Average, the S&P 500, and the Nasdaq all rising more than 1% by midday. Investors are now pricing in a 25 basis point rate cut in September, with some expecting rate cuts as early as the September FOMC meeting. Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, noted,"For those grappling with renewed stagflation fears, this payrolls report supports what Powell said earlier this week about not seeing the 'stag' or the '-flation' right now. Solid job gains, cooler wage pressures."

The April jobs report showed a significant slowdown in job growth, with only 175,000 jobs added, down from March's revised 315,000 figure. The unemployment rate rose slightly to 3.9% from 3.8% in March. The weaker-than-expected data supports the Fed's stance of not seeing stagflation risks currently, with solid job gains and easing wage pressures. If inflation continues to moderate in the coming months, September could mark the start of monetary easing by the Fed.

Key Takeaways

• US jobs report shows slower-than-expected growth, adding 175,000 jobs in April.
• Unemployment rate rises to 3.9%, average hourly earnings up 0.2% from previous month.
• Fed may delay interest-rate cuts due to slower job growth and easing wage pressures.
• Markets surge, with Dow Jones, S&P 500, and Nasdaq rising over 1% on the news.
• Investors expect 25 basis point rate cut in September, with some predicting earlier cuts.