US payrolls beat expectations to pull dollar from its lows
The Bureau of Labor Statistics (BLS) announced November’s US non-farm payrolls report on Friday 2 December, giving an insight into the state of the US economy and an indication of where the Federal Reserve might set interest rates.
The report was the last non-farm payrolls ahead of the Federal Reserve’s meeting in December, with expectations that we may begin to see an easing of the recent aggressive rate hikes.
According to the BLS, non-farm payrolls came in at 263,000, which was well above the 200,000 figure economists had predicted – but still down from October’s upwardly revised figure of 284,000. The unemployment rate remained steady at 3.7%, although wages growth rebounded strongly to reach 5.1%, up 0.2% from October.
“On any ordinary measure Friday’s US payrolls report was a very solid number”, commented Michael Hewson, chief market analyst at CMC Markets, “however it was the wages numbers that provided a lot of the shock value”. On the day, yields and the US dollar sharply rose in value.
“The October jobs report offered little sign of a wage-price spiral, even though vacancies are still at high levels. Job cuts rather than pay rises have been a theme of the current earnings season, particularly at the big tech companies”, Hewson added. Twitter, Meta, and Amazon all announced job cuts over the past couple of months, with over 11,000 employees being cut from Meta and 10,000 people leaving Amazon.
For the week ending 19 November, the US Department of Labor reported a jump in jobless claims to 240,000, a significant increase of 17,000 from the previous week’s tally. This result surpassed economists’ expectations, reaching the highest number of weekly claims for unemployment benefits since August.
This predicated fall may be another indication of a declining US economy, further increasing the chances of rate cuts, which can then impact the performance of other markets including forex, indices, commodities, and shares (find out more).
Is the dollar on track to recover?
Although the US dollar rallied after the November jobs data, this was shown to be somewhat fleeting, as both the US dollar and yields ended a poor week off their lows.
“This would suggest that investors believe, probably correctly, that the numbers on Friday won’t change the calculus around a 50bps Fed rate hike next week, which is still largely expected, but it will probably mean that the size of any January hike is still up for grabs”, predicts Hewson.
“The inability of the US dollar, or for that matter US yields in the face of this upside surprise, does suggest that the US dollar may well have peaked, and that the die may be cast as to where the greenback goes next in terms of further weakness.”
While this may be good news for the US stock market in the short term, non-farm payroll announcements can lead to market volatility, increasing both the risk and opportunity for traders. Typically, if payrolls come in lower than expected, and it looks like the US economy is performing poorly, traders may turn to commodity safe havens, such as gold and silver.
Traders could also look to the Fed’s next US interest rate decision on 14 December, which is swiftly followed by the Bank of England’s rate announcement on 15 December.
