US nonfarm payrolls rose by 178,000 in March, reversing February’s revised fall of 133,000 (from -92,000) and beating expectations for a 60,000 gain. The unemployment rate eased to 4.3% from 4.4%, while participation slipped to 61.9% from 62.0%.
Annual average hourly earnings growth slowed to 3.5% from 3.8%. The BLS revised January payrolls up by 34,000 to 160,000 and revised February down by 41,000 to -133,000, leaving January and February combined 7,000 lower than previously reported.
Market Reaction And Context
After the release, the US Dollar Index traded with modest gains above 100.00. A preview had pointed to thin trading due to the Good Friday holiday and forecasts of 60,000 payroll growth, 4.4% unemployment, and 3.7% annual wage growth.
Other labour indicators included ADP reporting a 62,000 private-sector increase in March after 66,000 in February (revised from 63,000). The ISM manufacturing employment index was 48.7 in March.
CME FedWatch prices about an 80% probability that the policy rate stays at 3.5%–3.75% by end-2026, versus a 92% chance in early March of at least one cut this year. The US Dollar Index gained more than 2% in March.
The March jobs report gave us a conflicting picture, with a big upside surprise in hiring at 178K but a noticeable cooling in wage growth to 3.5%. This mix of signals explains why the US Dollar is struggling to find a clear path forward, despite the strong headline number. This kind of data creates uncertainty, which is something we can use.
This report’s strength is supported by other recent data, as weekly jobless claims have consistently remained below 220,000, signaling a tight labor market. However, we are still dealing with a Consumer Price Index that showed inflation running at a persistent 3.4% last month. The Federal Reserve is caught between a hot job market and inflation that won’t quit.
Implications For Fed Policy
Because of this strong hiring, the odds of a Federal Reserve interest rate cut in the near future have diminished significantly. We’ve seen market pricing on the CME FedWatch Tool shift dramatically, now indicating an 80% probability that rates will hold steady at the 3.5%-3.75% range for the rest of 2026. This is a major reversal from early March when a rate cut was widely expected.
We have seen this movie before, particularly when we look back at the economic environment of 2023. Back then, the labor market repeatedly defied forecasts of a slowdown, which forced the Fed to maintain its restrictive policy for much longer than investors had hoped. That historical precedent suggests we should be cautious about betting on a quick policy pivot from the Fed.
For us, this means volatility is likely to be the main theme in the coming weeks. The CBOE Volatility Index (VIX) is currently hovering below 15 but could easily spike as the market digests this conflicting information. We should look at options strategies like straddles on currency pairs like the EUR/USD to capitalize on sharp moves in either direction.
With the labor market sending mixed messages, the next inflation report will become even more important. We will be watching the upcoming CPI data very closely to see if the slowdown in wage growth is beginning to translate into lower prices. Any sign of reaccelerating inflation would likely erase any dovish sentiment from this report and push the dollar higher.
