The U.S. jobs report was a major disappointment and the dollar fell sharply against all of the major currencies in response as 10 year Treasury yields slipped nearly 4%. Turns out, the decline in consumer confidence, lower service, and manufacturing ISM employment measures were the most telling leading indicators for non-farm payrolls. Despite widespread re-openings, job creation did not live up to lofty expectations. Payrolls rose by only 559K against expectations for 671K increase. This is a solid number by any measure but investors can say goodbye to taper talk in June. With two subpar job reports, the Federal Reserve who meets later this month have the perfect excuses to avoid talking about reducing in asset purchases. There’s significant division within the central bank on how to manage inflation. Fed President Harker says it is time to think about tapering but Fed President Mester thinks more progress needs to made on the labor market – both are nonvoting members of the FOMC this year.

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The rise in stocks, sell-off in the U.S. dollar, and Treasury yields tell a consistent story of low-interest rates. While investors are disappointed by the overall number of jobs created, the labor market is moving in the right direction which is positive for stocks. The unemployment rate also fell to 5.8% from 6.1% while average hourly earnings growth accelerated by 0.5%, which was stronger than expected. A steady recovery combined with little imminent threat of taper talk is negative for the dollar and positive for risk currencies. With the Federal Reserve in their pre-FOMC quiet period next week, the dollar should remain under pressure against most of the major currencies.

U.S. dollar weakness drove the Canadian dollar higher despite another month of job losses in Canada. Economists were looking for Canadian employment to fall by -20K in May but the decrease was three times more than expected. Full and part-time employment declined, driving the unemployment rate up to 8.2% from 8.1%. The good news was that job losses were less than previous month and with the country poised to ease restrictions in June, jobs will return in the third quarter. Manufacturing activity also grew at a faster pace with the IVEY PMI index rising to 64.7 from 60.6. The Bank of Canada meets next week and they are widely expected to keep policy on hold after reducing asset purchases in April. As they could taper asset purchases again in the third quarter, their outlook could be less dovish than other central banks. Next week will be a busy one for the euro with a European Central Bank monetary policy announcement, German ZEW, and industrial production report scheduled for release.