The dollar index surged 0.77 percent to 102.26 after the October jobs report, its biggest daily percentage gain in nearly five months, as a stronger than expected payrolls report solidified expectations for a rate hike from the Federal Reserve next month. The Labor Department said employers added 165,000 jobs in October, topping the 65,000 estimate of economists polled by Reuters, after an upwardly revised 60,000 gain in September, and the unemployment rate dipped to 4.1 percent. The report gives the Federal Reserve latitude to continue to raise interest rates, and the market moved on it at once.
Why it matters
The currency moves were broad. The euro tumbled 0.67 percent to 1.1144 dollars, on pace for its biggest daily drop since October 1, and sterling tumbled 0.71 percent to 1.3355 dollars, on pace for its biggest daily drop since September 23, a day after the Bank of England raised rates. The dollar rose 0.36 percent to 158.27 yen, and for the week the dollar was up 0.3 percent while the euro shed 0.1 percent and was on track for a third straight weekly decline. The dollar was higher before the jobs data, buoyed by safe haven demand as the selloff in AI stocks spread worldwide, and the payrolls report gave it a second push.
The bond market moved with the currency. The 10 year Treasury yield rose to about 4.87 percent, up roughly 4 basis points, and the 2 year yield, which is especially sensitive to expected changes in the federal funds rate, climbed about 5 basis points to around 4.52 percent, with the 30 year near 5.26 percent. The report strengthens the case for another quarter point hike at the central bank December meeting, and market expectations for an increase of at least 25 basis points moved back up toward 80 percent in the wake of the report, according to the CME FedWatch Tool. Reuters put the priced probability at 78 percent, up from 70 percent before the release.
What happens next
The reason the dollar and yields moved together is the yield gap. Higher expected United States interest rates widen the gap with other major economies, which draws capital into dollar assets, and the dollar index, which measures the greenback against a basket of six major peers, gained about 0.7 percent. The same logic pushed gold lower, with spot gold falling nearly 1 percent to about 4,050.95 dollars an ounce, down 34.10 dollars on the day. Gold had already been under pressure before the employment report, and the strong payrolls gave investors one more reason to sell it.
What happens next will be decided by the October consumer price report on Tuesday, November 10, the last inflation reading before the Federal Reserve December 8 and 9 meeting. A hot inflation number would strengthen the case for a December hike and could push the dollar higher still, while a cool one would let the Fed wait and could reverse the move. For now, the market has made its judgement: the jobs report argued that the economy does not need relief, and that the Fed inflation fight still has a strong labour market underneath it. The dollar is the price of that judgement.
