Dollar advances post US jobs data
The dollar advanced against the euro and sterling following Friday’s much stronger than expected US jobs data for September, although its gains were relatively modest. The euro is trading at around $1.0960 against the US currency this morning, down a bit more than half a cent from immediately prior to the release of the data – and the first time it’s been below the $1.10 level since the middle of August – while sterling fell to a low for the week of $1.3070 post the data but has partially recovered to trade at around $1.3110 at the start of play today. EURGBP has drifted down further from Thursday’s intra-week high of over £0.8434, but remains off its 2024 low of £0.8311 set early last week trading at around £0.8365 this morning.
The jobs data has prompted a marked reassessment of Fed rate cut expectations. The market is now pricing in just 46bps of cuts by the end of this year, down from 60bps before the data, and about 145bps in total by the end of 2025, down from circa 175bps. This in turn has contributed to a spike in US bond yields, with 2- and 10-year yields rising by 20bps and 15bps respectively on Friday (the latter now just shy of 4% having risen by circa 40bps since mid-September). UK and German yields have followed some of the way higher, with 2- year yields rising by 15bps and 10bps respectively and 10-year yields up 10bps and 5bps respectively.
The US economy added 254k jobs in September, well ahead of the forecast increase of 150k, while the unemployment rate fell for a second month in a row to stand at 4.1%. Wage growth also picked up last month, with hourly earnings rising by 4.0% year-on-year after increasing by 3.9% y-o-y in August. The data will reinforce Fed Chair Powell’s view, expressed at the start of last week, that the central bank does not need to be in a hurry to cut rates “fast”.
It is quiet enough today in terms of economic data with retail sales in the Euro area and consumer credit in the US. Looking out over the week, the main releases include US CPI and PPI – both for September – on Thursday and Friday respectively, and UK GDP for August on Friday also. The Fed releases the minutes of its September monetary policy meeting on Wednesday.