- There were 254,000 new jobs in the US in September, far better than the forecast of 140,000.
- The US unemployment rate fell to 4.1%.
- Traders slashed bets for a super-sized November rate reduction.
Currency futures fell on Friday while the US dollar jumped after a blockbuster employment report lowered Fed rate cut expectations. At the same time, demand for the dollar remained high after several upbeat US economic reports.
US employment (Source: Bureau of Labor Statistics)
It was a green day for the dollar after the US released a better-than-expected nonfarm payrolls report. According to the figures, there were 254,000 new jobs in September, far better than the forecast of 140,000. At the same time, unemployment fell to 4.1% after reaching a high of 4.2% in the previous month.
The US Central Bank recently cut borrowing costs by 50-bps to preserve the labor sector. Consequently, market participants started pricing a similar move in November, boosting currency futures. However, this outlook started changing after Powell’s speech last Monday. The Fed Chair made hawkish remarks, hinting at two more 25-bps cuts this year. Consequently, traders slashed bets for a super-sized rate reduction.
Furthermore, rate-cut bets dropped after Friday’s employment figures, with markets moving to fully price a small rate cut in November. The Fed is currently more focused on growth than price pressures. Inflation has consistently eased and is nearing the 2% target. Therefore, policymakers are confident the fight is nearly over. Hence, the focus has shifted to the state of the economy.
Other reports from last week included job vacancies, private employment, and service sector business activity. Job openings in the US were more than expected, indicating a high demand for labor and a tight market. Meanwhile, private employment grew more than expected in September, pointing to a tight labor market. Finally, business activity in the services sector came in above estimates.
Therefore, economic growth remains steady, suggesting a soft landing by the Fed and a gradual pace for rate cuts.
Meanwhile, the pound was especially weak after Bank of England Governor Bailey hinted at an aggressive easing cycle. However, this will depend on incoming inflation data. The yen weakened against the dollar after Japan’s Prime Minister dampened expectations for a quick interest rate hike by the Bank of Japan. The new leader, previously considered a hawk, changed his tone and said the economy was not ready for hikes.
