- The US economy added a surprise 165,000 jobs in October.
- Remarks by Fed policymakers showed support for further rate hikes.
- Trump’s election loss could make it harder for him to pass policies.
Currency futures were weak on Monday after plunging in the previous session due to a robust US employment report. The dollar gained against most of its peers as the likelihood of a December rate hike increased. Meanwhile, the Republican loss during the midterm elections has eased concerns about an escalation in the Iran war.
US payrolls (Source: Bureau of Labor Statistics, Bloomberg)
The dollar jumped on Friday after the US released an upbeat October employment report. According to the data, the economy added a surprise 165,000 jobs during the month. Economists had predicted an addition of 65,000 jobs. Meanwhile, the unemployment rate eased from 4.2% to 4.1%, pointing to a strong labor market.
The report raised expectations for a Fed rate hike, with the likelihood of a December rate hike rising from 71% to 79%. A strong economy gives the Fed enough room to raise borrowing costs and bring inflation down to the 2% target.
The policymaker remarks after the data further supported the dollar. John Williams noted that the economy remains resilient despite recent shocks. However, he also pointed to the high inflation that needs to come down. Mary Daly, meanwhile, stated that the Fed will still need to raise borrowing costs, even in light of the recent tech rout.
Equities have been under pressure due to concerns about the AI sector. Most of these tech giants are heavy borrowers and drop when expectations of rate hikes increase. A plunge in stock markets reflects badly on US assets, weighing on the dollar.
Elsewhere, traders paid attention to the midterm elections, in which Democrats led in both the House and the Senate. The loss for Trump could make it harder for him to pass policies. At the same time, analysts believe there will be greater pressure to end the war in Iran, which will lower oil prices and ease inflation concerns.
“The Blue Sweep has put the AI trade to the test, given the risks of heavier AI regulation and a slowdown in the CAPEX cycle. However, economic realities continue to surprise to the upside while data momentum remains very strong across indicators,” Barclays strategists wrote in a report. “This combination is yet to dent the dollar’s appeal.”
Finally, market participants are looking forward to the US CPI report for more cues on future Fed moves.
