US Dollar steams on after an outrageous Nonfarm Payrolls print

by · FXStreet
  • The US Dollar jumps higher after a massive positive Nonfarm Payrolls print. 
  • Tensions in the Middle East together with further pared bets of big Fed rate cuts are fueling safe-haven inflows to the Greenback. 
  • The US Dollar Index moves higher and says goodbey to September's tight range. 

The US Dollar (USD) ties up with gains and is set to close off this week with nearly 2% gains in the US Dollar Index (DXY). The greenback gains after first the Nonfarm Payrolls print of 254,000 against the expected 140,000 was an out of this world number. The follow through which gave the Greenback another push higher came from traders unwinding bets on the number of rate cuts with a 100 basis point cut in total dropping below the 100 marker. 

All other segments in the US Jobs Report might create some issues already for the November rate cut. With the Average Hourly Earnings for September coming in at 0.4%, risk of sticky inflation remains. The US Federal Reserve will need to watch incoming data more closely right up to the very last end in November before considering what to do. 

Daily digest market movers: That data is not to be ignored

  • Expect some volatile moves in the Greenback if Israel strikes Iranian Oil fields. At the time of writing, discussions between Israel and the Biden administration for a green light on the attacks are still ongoing. 

  • Tthe US Jobs Report for September knocked it out of the park:

    • Nonfarm Payrolls jumped to 254,000 against 159,000 in August, while that was revised from 1420,000.
    • Monthly Average Hourly Earnings went from 0.5% to 0.4%, with that 0.5% being revised from 0.4% in August. 
    • The Unemployment rate went stronger again to 4.1%, a touch stronger than 4.2% previously.  
  • At 13:00 GMT, Federal Reserve Bank of New York President John Williams delivers opening remarks at the event "The Future of New York City: Focus on Jobs" organized by the New York Fed.
  • Equities are applauding the positive US Jobs Report with all US indices near 1% higher. 
  • The CME Fedwatch Tool shows a 69.3% chance of a 25 basis-point rate cut at the next Fed meeting on November 7, while 30.7% is pricing in another 50-basis-point rate cut. 
  • The US 10-year benchmark rate trades at 3.95%, a 30-day high. 

US Dollar Index Technical Analysis: Goodbey September

The US Dollar Index (DXY) has made a stellar recovery this week with the cherry on the cake Thursday, when it was able to break out of September’s range. The 55-day Simple Moving Average (SMA) at 102.05 has refused to let the DXY trade higher and shows its strength as a resistance level. Expect the US Jobs Report to be the catalyst that snaps that level for more upside or sees the DXY fall back into range. 

The 55-day Simple Moving Average (SMA) at 102.05 has already acted as resistance and is the first level that needs to be broken for more upside. A leg higher, the chart identifies 103.18 as the very final level for this week. Once above there, a very choppy area emerges with the 100-day SMA at 103.36, the 200-day SMA at 103.75 and the pivotal 103.99-104.00 levels in play. 

On the downside, 100.62 is flipping back from resistance into support in case the DXY closes above it this week. The fresh low of 2024 is at 100.16, so a test of this level should take place before more downside. Further down, and that means giving up the big 100.00 level, the July 14, 2023, low at 99.58 comes into play.

 

US Dollar Index: Daily Chart

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.

 

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