US Dollar Eases After Blowout Jobs Number
Introduction: The US dollar has experienced a slight decline against a basket of currencies following the release of the latest jobs report. While the report showed a broad increase in US hiring for September, it also indicated a slowdown in wage growth. This article delves into the implications of these findings and provides insights into the market’s reaction.
Assessing the Jobs Report
The US dollar index, which measures the currency’s strength against six major rivals, fell by 0.31% to 106.03. Earlier in the session, the index had reached as high as 106.98 after data revealed a significant increase of 336,000 jobs in September. Additionally, the numbers for August were revised upward, indicating 227,000 jobs added instead of the previously reported 187,000. Economists had predicted a rise of 170,000 jobs for September.
“This morning’s data pushed expectations for the first rate cuts further into late 2024, but failed to convince market participants of another hike this year, meaning that short-term yields – which play a dominant role in driving foreign exchange moves – remained relatively stable,” explained Karl Schamotta, chief market strategist at Corpay in Toronto.
The post-payrolls analysis revealed that US rate futures now reflect a 42% chance of a rate increase by year-end, up from approximately 33% on Thursday, according to the CME’s FedWatch tool.
Impact on US Government Bonds
The recent strength of the US dollar has been bolstered by a rapid sell-off in US government bonds, resulting in yields reaching multi-year highs. While benchmark 10-year notes and 30-year yields reached their highest levels since 2007, two-year notes remained slightly below the peak seen on September 21. This surge in yields has contributed to the overall performance of the dollar.
Wage Growth and Inflation Concerns
The jobs report highlighted moderate monthly wage growth, with average hourly earnings rising by 0.2% in September, following a similar gain in August. Over the past 12 months, wages have increased by 4.2%, slightly lower than the 4.3% growth observed in August.
Despite the softening wage growth, there is still speculation regarding the possibility of a rate hike. Tony Welch, chief investment officer at SignatureFD in Atlanta, commented, “When we go through the report today, average hourly earnings are probably soft enough that the Fed doesn’t need to hike, but we’ll see what happens with inflation, I think it still keeps that on the table.”
Weekly Performance and Future Outlook
For the week, the US dollar index experienced a slight decline of 0.1%, marking the end of an 11-week streak of gains that had propelled it approximately 6% higher. Helen Given, FX Trader at Monex USA, attributed this reversal to “a small bit of profit taking.”
Looking ahead, market attention will shift to next week’s US inflation data, which could offer valuable insights into future actions by the Federal Reserve. “If next week’s US consumer price data pushes yields even higher, we should see safe-haven flows beginning to add to rate differentials in supporting the greenback,” added Karl Schamotta of Corpay.
Other Currency Movements
The US dollar strengthened by 0.54% against the Japanese yen, trading at 149.31 yen. Traders have been closely monitoring the 150 mark, as a sustained depreciation in the yen could prompt intervention by Japanese officials. Meanwhile, the British pound demonstrated resilience, rising by 0.43% to $1.22445, indicating a potential larger rebound for the currency.
In conclusion, the US dollar’s decline following the release of the jobs report reflects the market’s assessment of the data, particularly the slowdown in wage growth. As the market awaits future economic indicators, such as inflation data, the performance of US government bonds will continue to impact the dollar’s trajectory.