On Friday, as investors analysed the Friday jobs report that showed U.S. hiring increased significantly in September but also that pay growth is slowing, the U.S. dollar weakened versus a basket of currencies.
The dollar index, which gauges the strength of the currency against a basket of six competitors, fell.
0.31
% to
106.03
.
The index increased up to
106.98
earlier in the day, following statistics showing a 336,000 job growth in U.S. nonfarm payrolls in the previous month. As a result of an increase in the numbers for August, 227,000 jobs were added as opposed to the previously reported 187,000. Reuters polled economists, who projected an increase in payrolls of 170,000 jobs in September.
“This morning’s data pushed expectations for the first rate cuts further into late 2024, but failed to convince market participants of another hike this year, meaning that short-term yields – which play a dominant role in driving foreign exchange moves – remained relatively stable,” Karl Schamotta, chief market strategist for Corpay in Toronto, stated.
According to the CME’s FedWatch tool, after payrolls, U.S. rate futures priced in a 42% likelihood of a rate increase by the end of the year, up from approximately 33% on Thursday.
Recent gains in the dollar have been supported by a sharp sell-off in US government bonds that drove yields to multi-year highs.
Two-year notes surged as high as 5.151%, maintaining below the 5.202% level reached on September 21. Benchmark 10-year notes reached 4.887% and 30-year yields reached 5.053%, both the highest since 2007.
According to payroll figures, monthly wage increase remained low, with
the average hourly wage increasing by 0.2%
followed a gain akin to this in August. Wages grew 4.2% in the year to September after rising 4.3% in August.
According to Tony Welch, chief investment officer at SignatureFD in Atlanta, “when we go through the report today, average hourly earnings are probably soft enough that the Fed doesn’t need to hike, but we’ll see what happens with inflation, I think it still keeps that on the table.”
The dollar index was down 0.1% for the week, threatening to end an 11-week winning streak that had allowed it to increase by almost 6%.
It amounts to a little amount of profit-taking. FX trader Helen Given at Monex USA commented on the dollar’s reversal on Friday.
The focus is now on the American inflation figures due out the following week, which could provide information on future Fed policy.
“If next week’s U.S. consumer price data pushes yields even higher, we should see safe-haven flows beginning to add to rate differentials in supporting the greenback,” Corpay’s Schamotta said.
In comparison to the yen, the dollar
0.54
% greater at
149.31
Dealers have been on high alert for weeks for a potential intervention by Japanese government to stop a persistent decline in the yen, which has been hovering close to the 150 level.
the pound increased
0.43
% at $
1.22445
, set to end the week on a good note, a promising development that supported the notion of
greater of a rebound
for the pound sterling.