Dollar dips as U.S. jobs report disappoints

November 3, 2017 10:05 AM

Sellers wasted no time in attacking the dollar on Friday, following news that the United States added another 261,000 jobs to its economy in October.

While the headline Non-Farm Payroll (NFP) data continues to highlight the underlying strength of the U.S. jobs market, it is still below the market expectation of 312,000. Digging deeper into the report, the key culprit behind the dollar selloff was most likely average monthly earnings, which remained flat in October. With tepid wage growth fueling concerns that inflation could remain depressed for extended periods, the markets may start debating how often the Fed raises rates in 2018. On the bright side, the unemployment rate dropped to a 17-year low at 4.1%, after the hurricane disruptions.

Taking a look at the technical picture, the U.S. Dollar Index is under pressure on the daily charts. Prices have descended towards 94.50, with bears currently eyeing 94.00. Sustained weakness below this level puts the current bullish setup at risk, with the next level of interest at 93.50. In an alternative scenario, the U.S. Dollar Index needs to break above 95.00, for further upside.

Jerome Powell is in the building 

Financial markets offered a fairly muted response on Thursday, after President Donald Trump nominated Jerome Powell as the next Fed Chair. Trump’s decision is in line with market expectations, and Powell is expected to keep the ‘status quo,’ so the flat reaction short-term is understandable. Although markets expect Powell to take the baton from Yellen by following the current monetary policy course, it should be kept in mind that he is seen as a cautious dove. While it is probably too early to make any assumptions, a dovish Fed head could weigh on the prospects of higher U.S. interest rates in 2018.

Sterling pummeled and thrashed

Sterling was pummeled, pounded and thrashed by sellers on Thursday, after the Bank of England moved forward with a ‘dovish rate hike.’ This was the first time in over a decade that UK interest rates were increased, and the heavy tone of caution radiating from the meeting raised concerns over the future path of rates in 2018. With Brexit uncertainty and concerns over slowing economic growth weighing heavily on the currency, further downside is on the cards.

The pound attempted to recover on Friday morning, following reports of Britain’s service sector growing at its fastest rate in six months. UK Services PMI jumped 55.6 in October, up from 53.6 in September, which seemed to offer some confidence to bulls. The upside seems limited, especially when considering how Thursday’s dovish hike has eroded buying sentiment towards the currency.

From a technical standpoint, sterling is under pressure on the daily charts. Sustained weakness below 1.3050 may open a path towards 1.3000 and 1.2970, respectively.

A trading week to remember…..

Investors are likely to remember the first trading week of November as one where the Bank of England raised UK interest rates for the first time in over a decade. Reports of Trump unveiling his full tax plan, and the nomination of a new Federal Reserve Chair, have added some spice to the proceedings. This, coupled with October’s mixed U.S. Jobs report, is likely to give investors lots to ponder over the weekend.

About the Author

Lukman Otunuga is an FXTM research analyst