The United States Dollar is losing some ground after non-farm payrolls whelmed markets, coming in largely close to expectations
Overview
The headline employment figure showed that the US economy added 227,000 jobs in November, above expectations of a gain of 220,000. October’s noisy reading was also revised upward a touch to 36,000. The unemployment rate, however, ticked up to 4.2% and the participation rate of the labor force declined to 62.5%. The household employment survey, as well, was rather dismal, showing that employment in November actually declined by 355,000, nearly as much as the decline in October that was largely chalked up to severe weather and strikes.
Though the release was in effect a mixed bag, the drop in the Dollar can likely largely be attributed to reaction to the household survey and unemployment rate. All told, though, this morning’s data dump does not show that the bottom is falling out of the labor market. There are signs of cooling, of course, but none of this release indicates that a recession is imminent or that the labor market is unduly anemic. This does, however, help market participants solidify bets that the Federal Reserve is likely to cut interest rates by 25 basis points later this month, potentially followed by a pause in January. Fed officials are not yet in their blackout period preceding the meeting, so markets will undoubtedly receive some commentary from Governors over the next few days. Fed Chair Jerome Powell, for his part, has emphasized the overall health of the US economy in various appearances since their last meeting and has stuck to a narrative of gradual easing – traders will be searching for any messaging pivot from him over the coming days and weeks.
Traders have also added to bets on easing in the back half of next year, expecting that the labor market could cool further and prompt the Fed to make more action. The University of Michigan’s Consumer Sentiment reading is due out later this morning, but the front end of next week is set to be much quieter before November’s CPI inflation rate is released next Wednesday morning.
What to Watch This Week…
- University of Michigan Consumer Sentiment, Friday 10AM
- Monex USA Online is always open
CAD ⇓
The Canadian Dollar is one of a few currencies underperforming the Dollar today after Canada release its own employment data alongside the US figures. Canada’s unemployment rate rose to 6.8% last month, above expectations of 6.6% and well above October’s reading of 6.5%. This is in the face of a positive net employment change and steady growth in the labor force participation reading, but traders are clearly focusing more on unemployment coupled with a fairly benign US survey. Markets are now leaning much more heavily toward a 50 basis point interest rate cut from the Bank of Canada next week.
GBP ⇑
Pound Sterling is holding onto gains the currency made against USD during trading yesterday and overnight, driven partially by US employment figures. A UK mortgage lender also said that housing prices rose by the most in more than two years last month, and Bank of England official Megan Greene warned markets yesterday that continually high housing prices will continue to put pressure on consumer spending and could keep economic growth rather stagnant. The Bank of England is widely expected to hold interest rates steady at its meeting on December 19th , though, after inflation ticked back up last month
