- Data on Friday revealed that US employers hired only 12,000 new workers in October.
- Traders are pricing a 99% chance of a Fed rate cut in November.
- Investors are focused on the US presidential election.
Currency futures eased on Friday as the dollar surged despite a downbeat US employment report. Market participants paid little attention to the report since it could have been a one-time dip. At the same time, the focus was on the upcoming US presidential election. However, moves on Monday were subdued as traders preferred to wait on the sidelines.
US employment (Source: Bureau of Labor Statistics)
Data on Friday revealed that US employers hired only 12,000 new workers in October. This was a dismal performance compared to expectations for 106,000 new jobs. The dollar initially dipped but soon reversed when it became clear that the poor report was mostly due to hurricane disruptions and a workers’ strike.
Moreover, the unemployment rate held steady at 4.1%, showing a still-resilient labor market. As a result, Fed rate cut expectations barely changed, with traders pricing a 99% chance of a rate cut in November.
Furthermore, markets were more focused on the US presidential election, which could change the outlook for rate cuts. Kamala Harris and Donald Trump are closely tied in the race to the top. Therefore, there is a lot of uncertainty regarding the outcome. If Kamala wins, the economy will likely continue in its current trajectory with few changes to fiscal policy.
On the other hand, if Trump wins, there will be changes to fiscal policy, which experts believe will drive inflation higher. This, in turn, would halt the Fed’s rate-cutting cycle. Consequently, a Kamala win would boost currency futures as the greenback would collapse. On the other hand, a Trump win would support the dollar and hurt currency futures.
The Canadian dollar strengthened slightly before falling after domestic data revealed a surge in business activity. The manufacturing PMI rose to 51.1 in October, suggesting a rebound in the economy. As a result, it reduced pressure on the Bank of Canada to hike interest rates.
At the same time, CAD received support from increased oil prices. This came from Iran’s threats to retaliate after Israel’s attack. Meanwhile, other currency futures like the yen, euro,, and pound eased against the strong dollar.
After the US election, the focus will return to US interest rates. The Fed will meet later in the week, likely lowering borrowing costs. Moreover, investors will watch the tone for clues on future moves.
