Dollar explodes higher on strong labor market data


– The United States is moving closer to “full employment”
– paves the way for rate hikes in the United States
– Dollar hits new 15-month highs
– GBP / USD and EUR / USD near the lower end of the range

Image © Adobe Images

The dollar was on the verge of its highest levels since July 2020 following the release of a consensus-shattering labor market data set and confirms that 531,000 jobs were created in October.

This exceeds market expectations for 450K and marks a gain from September’s 312K, which has been revised up.

The data suggests the US economy is on track to suck up its unemployed over the next few months, an achievement that will then prompt the US Federal Reserve to raise interest rates.

“We believe the report brings the labor market closer to the maximum employment requirement that must be met before the Fed starts to hike rates,” said Knut A. Magnussen, senior US economist at DNB Bank ASA.

Dollar index

Above: The USD Index (weekly chart) seeks to test levels last seen in July 2020.

  • GBP / USD reference rate at publication:
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  • High bank rates (indicative band): 1.3260-1.3360
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Expectations of superior economic performance in the United States and higher interest rates are a tempting proposition for international investors, who are happy to convert their assets and capital into investments based in the United States, including securities at fixed income.

“Developments in the US labor market are important to watch, especially now that the Fed has started to decline and rate hikes are built into the market for 2022. The drop in the unemployment rate could lead to increased demand for dollars. Said George Vessey, analyst at Western Union Business Solutions.

The US Dollar Index – a measure of the dollar’s performance against a basket of currencies – rose to 94.55 in the wake of the numbers and is expected to test new 15-month highs looming at 94.73.

The pound-to-dollar exchange rate was lower at 1.3463 and threatened to break new lows as the euro-to-dollar exchange rate hit its lowest level since July 2020, at 1.1513.

Weekly Dollar Pound

Above: GBP / USD is in a well-defined medium-term downtrend as per the weekly chart

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The US unemployment rate unexpectedly fell to 4.6% in October from 4.8% in September, beating the consensus estimate for a drop to 4.7%.

Average hourly wages rose 0.4% month-on-month in October, lower than September’s figure of 0.6%. The average annual hourly wage, however, fell from 4.6% to 4.9%.

DNB Jobs Report

Image above courtesy of DNB Markets.

Magnussen of DNB Bank said the Fed’s benchmark for raising rates – full employment – would likely be met in the first half of next year.

The signal for such a move could come as the Fed chooses to step up the pace at which it slows its quantitative easing.

The Fed announced Wednesday, November 3 that the tapering would start with $ 15 billion per month in November and December.

unemployment in the United States

Image above courtesy of DNB Markets.

“We remain hopeful that most of those excluded from the workforce by Covid will return, filling more than 10 million vacancies in the coming months and easing the upward pressure on wages,” said Ian Shepherdson, economist in chief at Pantheon Macroeconomics. .

Shepherdson says the job market has been pushed by the reopening of schools and daycares and the end of improved Covid-related benefits.

“This report clearly supports the thesis that Delta slowed the economy and the labor market over the summer, but it offers nothing directly to the idea that labor market participation is about to die. ‘a sustained rebound,’ Shepherdson said.

Pantheon Macroeconomics says job gains of over 1 million are a good bet for November and December.

“We continue to see upside risks to the US dollar over the medium term resulting from an undervalued Fed. Powell’s reluctance to push market prices off hikes was followed by his comment that the US economy could experience full employment next year, ”said Ben Randol, FX strategist at Bank of America.


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