USD/JPY: Dollar-Yen Rate Tests Seven Week Lows As US Private Sector Employment Slumps

UPDATE: "The US dollar extended its slide against the Japanese Yen for the fourth day in a row but safe haven demand drove the greenback higher against other major currencies" says Kathy Lien, BK Asset Management. The US dollar has edged lower in currency markets as April private-sector jobs declined over 20.0mn The ADP employment report for April recorded a monthly decline in private-sector payrolls of 20.24mn following a revised decline of 149,000 for March. The decline in jobs for the month was slightly below consensus forecasts of 20.50mn. Inevitably, this was by far the largest monthly decline recorded in the survey’s history. The largest employment decline recorded previously was 835,000 in February 2009.

The report uses data up until April 12th and does not therefore capture the full impact of COVID-19 on the labour market.

Small businesses registered a decline of 6.0mn on the month with a 5.3mn drop in medium-sized companies and 8.96mn slide in jobs at large companies.

There was a 4.23n decline in goods-producing jobs for the month with employment in services registering a slide of just over 16.00mn. Inevitably, the leisure and hospitality sector was the worst affected with a loss of 8.61mn jobs.

Ahu Yildirmaz, co-head of the ADP Research Institute commented; “Job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession. “Additionally, it is important to note that the report is based on the total number of payroll records for employees who were active on a company’s payroll through the 12th of the month. This is the same time period the Bureau of Labor and Statistics uses for their survey.”

Market expectations for Friday’s employment report are for a 21.0mn decline in non-farm payrolls and unemployment rate of 16%. The ADP data may lead to slight revisions to these estimates.

The ADP survey counts individuals as employed as long as they are on the payroll, even if their hours have been reduced to zero and may, therefore understate the full extent of job losses.

Paul Ashworth of Capital Economics also warned, therefore that Friday’s jobs report could look even worse; ‘With many people put on temporary layoff, that could have created a discrepancy, with those people still on the active payroll, but not counted in the official non-farm payroll figures and also qualifying as unemployed in the other official household survey.’

‘We still estimate that non-farm payrolls fell by 22,500,000, with the unemployment rate rising to somewhere between 15% and 20%.’

Uber has also just announced US job cuts of 3,700.

St Louis Fed President Bullard stated that unemployment could hit 20%, but also said “it can come down under double digits by year end, if economic relief programs work well and the virus is adequately controlled.”

Market reaction was relatively muted with a slightly more defensive risk tone, although Wall Street indices opened slightly higher. The dollar overall edged lower on medium-term economic concerns.

The yen maintained a firm tone amid a slight dip in risk appetite with US dollar/Japanese yen retreating to near 106.00 and trading at the lowest level since the middle of March. Euro/dollar remained on the defensive, but traded around 1.0820 from intra-day lows of 1.0785. Sterling/dollar was held just below 1.2400.