The US Dollar Index managed to rise since the beginning of the week, amid a lack of fundamentals across the board, whether in Asia, Europe, and the US.
However, there is still some confusion among traders on why the US Dollar declined on Friday right after the US Jobs Report, despite the fact that it came in better than expected.
Moreover, there is also some confusion on why it rallied on Monday, despite the fact that the French election risk is behind us. Let’s look at each case separately:
USD Declines After NFP
As we always warned many times in our previous reports, traders need to know before acting.
It is true that the overall outcome of the report is positive. The NFP recovered in April after March’s sharp slowing down. The Unemployment declined to new lows, and finally, the MoM wages has increased by 0.3%.
What most of the traders missed is that the Federal Reserve will always look at the YoY wages growth, which slowed down to the lowest level in almost a year. This is contrary to the market estimates, which estimated a higher wages growth toward 2.7%, while the actual number came in lower to 2.5%.
With no wages growth, this would put downward pressure on inflation, meaning that Core inflation might not be on the right track to hit the Fed’s target at 2%.
USD Rallied on Monday
On Monday many traders were excited about the French election outcomes, estimating similar gaps just like the ones that happened right after the first round of the French elections.
However, those traders were disappointed, as the US Dollar declined only a few pips before it added more than 0.5% on Monday and continued to rise by more than 0.4% today.
The market has already priced in Macron’s victory two weeks ago, the USD Index tumbled by almost 1.5% in one day following the first round outcomes.
Since the market priced in the 2nd round in advance, then there is no need to overreact. This has led the US Dollar to gain ground once again.
