US dollar down a cent after nonfarm payrolls

What's next after nonfarm payrolls?

It's not a one-off event. Economic data has been struggling since the start of the year and GDP estimates are somewhere are 1% for Q1. With inflation negligible at the moment, it's a tough time for the Fed to be hiking rates.

Atlanta Fed President Lockhart made it clear the FOMC wants to hike in the June-Sept window but it's looking less likely that June is the date. But really, whether the Fed hikes in June or July isn't that big of a difference. Perhaps what the takeaway should be is that the Fed will hike more slowly and less in total.

Fed chairman Yellen continued to talk about hiking rates to 3.75% as the terminal, neutral rate last Friday but Bill Gross took her to task this week and I agree:

"They still believe in their 3¾% nominal blue dots which conflate to a 1¾% real rate of interest that has been in vogue for 30 years now. Yellen herself has admitted that the real neutral rate changes and that it depends on a variety of factors including fiscal and monetary policy, term premiums, equity prices and yield curves - so many as to be impossible to model. When Jim Cramer screamed "they know nothing, they know nothing", he was being a little unfair but not by much," Gross wrote.

The Eurodollar curve is moving toward Gross. At the start of the year, the market was looking for 2% in March 2017, that was down to 1.50% yesterday and a bit lower after the jobs data.

Changes in the Eurodollar curve h/t @boes

The case for weather is strengthened by what happened last year. A harsh winter led to a 2.1% contraction but the economy rebounded 4.6% and 5.0% in the following two quarters. That appears to be what the Fed believes will happen again.

US quarterly GDP

The alternative is that the weaker global economy and soaring US dollar is weighing on the economy more than the Fed models suggest.

Market reaction:

The US dollar is getting smashed in a thin market. But even if liquidity was strong it would be something similar. The dollar is down roughly a cent right across the board.