- The US economy added 224,000 jobs in November.
- The US unemployment rate rose from 4.1% to 4.2%.
- US consumers expect inflation to reach 2.9% in a year.
Currency futures eased on Friday as the dollar rose after a mixed nonfarm payrolls report. At the same time, a US consumer sentiment report revealed higher expectations for inflation, boosting the dollar. However, the trend slowly reversed on Monday as the focus shifted from employment to the upcoming US consumer inflation figures.
Data on Friday revealed that the US economy added 224,000 jobs in November, indicating faster job growth than in October. As a result, the greenback rose against most peers. However, the rally was interrupted as the market focus shifted to unemployment.
The unemployment rate rose from 4.1% to 4.2%, raising the odds of a Fed rate cut in December from 70% to 85%. Cracks in the labor sector can pressure the central bank to lower borrowing costs. Notably, the labor market drives a big part of the economy and can indicate slower demand.
However, the brief retreat in the dollar reversed when the US released another report showing higher inflation expectations. The University of Michigan consumer sentiment measure rose more than expected in December. At the same time, consumers expect inflation to reach 2.9% in a year, higher than the previous month’s 2.6%. This shift comes after Trump won the US election and brightened the outlook for the economy and inflation. This report boosted the greenback, which closed Friday up.
Canadian dollar (Source: Bloomberg)
Meanwhile, currency futures like the Canadian dollar and the euro dropped. Notably, the loonie sharply declined after domestic employment figures supported a massive BoC rate cut. The Bank of Canada has been the most aggressive central bank, cutting by 50-bps at its last meeting.
As a result, markets have been pricing another such move. Data on Friday revealed that although Canada’s job growth increased, the unemployment rate jumped from 6.5% to 6.8%. Consequently, market participants increased the chances of a super-sized BoC rate cut this week.
Meanwhile, the euro fell due to the strong dollar and expectations for more rate cuts in the Eurozone than in the US. A Reuters poll showed that most economists expect an ECB rate cut in December. Moreover, they expect about 100-bps of cuts by the end of next year. The Eurozone economy is much weaker than the US, likely leading to some divergence in monetary policy.
