The US dollar rocketed to close out the trading week after a much stronger-than-expected September jobs report. The greenback benefited from increasing expectations that the Federal Reserve will not be as aggressive in lowering interest rates as initially anticipated. Can the buck reclaim its exceptional gains from earlier in the year?
According to the Bureau of Labor Statistics (BLS), the US economy created 254,000 new jobs in September, up from an upwardly revised 159,000 in August. The consensus estimate was 140,000 new jobs. The unemployment rate dipped to 4.1% from 4.2% and came in below economists’ expectations.
Average hourly earnings rose 0.4% monthly and 4% year-over-year. The labor force participation rate was flat at 62.7%. Average weekly hours slid to 34.2. Most of the employment gains were primarily concentrated in food services and drinking places (69,000), health care (45,000), government (31,000), social assistance (27,000), and construction (25,000).
While stocks popped after the September jobs report, they pared their gains. However, the US dollar and dollar-related assets rocketed on the news, prompting investors to trim their monetary policy forecasts.
The futures market is penciling in a 25-basis-point interest rate cut at the November Fed policy meeting. Heading into the print, investors were split on whether the central bank would follow through on a quarter-point or half-point rate cut.
Traders now think that the Fed will be conservative in its approach to unwinding tight monetary policy now that the labor market is not facing an imminent crash and inflation threats have subsided.
Fed Chair Jerome Powell recently told an audience of economists and business leaders that the central bank is not “on a preset course” and will institute smaller rate cuts moving forward.
As a result, the US Dollar Index (DXY), a metric of the buck against a basket of currencies, spiked 0.49% to 102.49, from an opening of 101.91. The DXY is on track for a weekly gain of 2.1%, lifting its year-to-date gain to 1.1%.
US Treasury yields went gangbusters on Friday, with the benchmark ten-year yield rallying 11.1 basis points to 3.959%. The two-year yield jumped 17 basis points to 3.884%, while the 30-year bond added 7.3 basis points to 4.253%.
The USD/CAD currency pair rose 0.18% to 1.3580, from an opening of 1.3556, at 14:58 GMT on Friday. The EUR/USD declined 0.53% to 1.0974, from an opening of 1.1033.