US jobs power up soaring dollar

The US September payrolls showed a net increase of 248,000, a total upward revision of 69,000 in the prior two months and a decline in the unemployment rate to a 5.9%, the lowest since July 2008. The rare combination of a decline in the jobless rate and an upside surprise in employment creation is further contributing to the explosive rally of the US dollar. The report not only confirms that the Federal Reserve will end is quantitative easing later this month, but also revises expectations that it could raise interest rates as early as summer 2015 rather than autumn 2014.

The US dollar has now dragged the GBPUSD rate below $1.60 for the first time since November, while gold has broken below $1200/oz for the first time since December. The US dollar index rose for the 12th straight consecutive week, the longest series weekly advances since the index was created in 1971.

The decline in the participation rate to a fresh 36-year low of 62.7% continues to raise the question about the breadth of labour market improvement, but when non-farm payrolls have risen by more than 200K in seven out of the last eight months, this will be defined as a notable improvement, even in the books of the most dovish of central bankers.

USD rally: from robust to fierce

We said two weeks ago on here the dollar rally shows characteristics not seen since 2005 as it is accompanied by advances against the Japanese yen, which is unlike any of the USDX advances of the past six years. Aside from domestic strength in the US as well as the windfall of falling oil prices on the US economy, the ensuing negatives abroad will keep the greenback standing tall.

Outside the US, the factors aiding the USD are more than enough; the UK’s political uncertainty ahead of the May elections and the lingering risk of a “No” from the EU; Japan’s planned rebalancing of pension portfolios to include more foreign stocks, Eurozone’s dependence on a weak euro to fight off the threat of disinflation regardless of how many ABS and covered bonds the ECB buys; Switzerland’s ongoing threat to enter negative interest rates as long as EURCHF is under pressure are all the factors for the Fed to consider when removing the punch from the party.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.