Dollar Strength Continues as U.S. Job Growth Surges
NEW YORK, Nov 20 – The dollar strengthened against most major currencies on Thursday, buoyed by indications of increased U.S. job growth in September. Analysts interpreted these signs as a likely pause in interest rate cuts by the Federal Reserve in December.
Freshly released data indicated that employers added more jobs than anticipated, albeit with a concurrent rise in the unemployment rate.
Specifically, nonfarm employment rose by 119,000 in September, significantly surpassing the 50,000 jobs economists had forecasted. However, the unemployment rate climbed to 4.4% from 4.3% the previous month, impacted by delays in reporting due to the government shutdown.
“The stronger payroll numbers render cuts less justifiable for the Fed,” noted Uto Shinohara, a senior investment strategist at Meshiro Currency Management. He added that the market currently lacks essential data, making September’s figures somewhat outdated.
“An announcement for October would have likely accounted for any anomalies from the shutdown. The current absence of such data diminishes the risks of overreacting to potentially negative reports. As it stands, markets expect around a 10 basis point easing in December, reflecting doubts about a rate cut at the upcoming meeting,” he commented.
The yen underperformed further, slipping 0.26% against the dollar to reach 157.59 yen. The dollar peaked at 157.89 yen, marking its highest point since January, and the Japanese currency faced its first drop in four days.
Japanese Economic Strategies
Since Prime Minister Sanae Takaichi’s election last month, the yen has weakened roughly 6%, raising concerns about the borrowing necessary to support his upcoming stimulus package despite rising Japanese government bond yields.
The new administration is set to unveil an extensive economic stimulus package exceeding 20 trillion yen, the most considerable effort since the coronavirus pandemic. Takaichi is expected to announce this on Friday.
Japan’s Finance Minister, Satsuki Katayama, emphasized on Tuesday that the government is observing market movements with significant caution.
“The prevailing view is that the new prime minister might prompt the Bank of Japan to adopt a softer approach, effectively turning the market’s attention to the dynamics of the yen carry trade,” said Jane Foley, head of foreign exchange strategy at Rabobank London.
However, she expressed concerns that investors might not make the best choices. Takaichi is likely looking to bolster ties with the U.S. and may not want to be linked to a weak yen policy.
Traders are now contemplating potential Japanese government intervention near the 160 yen mark, reminiscent of actions taken last July.
Chief Cabinet Secretary Minoru Kihara remarked on Thursday that the recent moves in the market are unilateral and concerning.
Fed Minutes Indicate December Rate Cut Unlikely
Meanwhile, currencies outside Japan also dropped against the dollar. After the minutes from the October Federal Reserve meeting revealed that “many” members ruled out a December rate cut, it became evident that “several” still considered it a possibility.
Cleveland Fed President Beth Hammack reiterated her stance against additional cuts, citing above-target inflation and already supportive financial conditions. She also warned about potential job cuts being viewed as “insurance” for the labor market, suggesting that these could exacerbate risks to financial stability.
According to CME Group’s FedWatch tool, the probability of a 25 basis point rate cut at the December 10 meeting stands at 39%.
The euro slipped 0.06% to $1.1533, touching a two-week low, while the pound appreciated 0.23% to $1.3087, its lowest since the start of the month.
The dollar index, tracking the U.S. currency against six others, rose 0.1% to 100.18, testing six-month highs earlier reached in November.
“I have doubts about the robustness of U.S. economic indicators. There does seem to be room for insurance cuts,” Steve Englander remarked, adding uncertainty regarding whether the FOMC would agree on this front.
In the cryptocurrency realm, Bitcoin tumbled to a seven-month low, dropping 4.43% to $86,521.25.
