• December's Nonfarm Payrolls has shown that the US labor market is growing at a solid pace.
  • The dollar may suffer a short-lived "buy the rumor, sell the fact."
  • Chances of the Fed raising rates in March have substantially risen.

Don't look up, but rather under the hood – for a second month in a row, the headline Nonfarm Payrolls badly disappointed with an increase of only 199K. An upward revision worth 39K for November doesn't improve that picture. However, other data look much better. 

The unemployment rate dropped to 3.9%, not only better than expected but also an excellent figure in absolute terms. That comes on top of an increase in the participation rate to 61.9%. These figures are nearing pre-pandemic levels of 3.2% and 62.8%, after months of muddling long. Moreover, the U-6 underemployment rate – aka "real unemployment rate" – dropped from 7.7% to 7.3%. 

Secondly, and more importantly for the dollar and the Fed – wage growth is super-strong. Average hourly earnings rose by 0.6% in December and 4.7% yearly, both substantially beating estimates. That implies inflationary pressures remain robust/ 

Lift-off is coming – the Federal Reserve's meeting minutes revealed an urge to begin raising rates soon. How soon? Nonfarm Payrolls figures for December may have sealed the deal, showing inflationary pressures via wage growth and robust revisions. 

The Fed's minutes – which also alluded to squeezing the bank's bloated balance sheet – already pushed the greenback higher ahead of the release. That implies a short-term profit-aking move against the dollar. Moreover, ADP's private-sector jobs report showed a whopping increase of 807,000, raising real expectations – aka the "whisper number" to elevated levels. That implies a "buy the rumor, sell the fact" response.

When zooming out, the concluding NFP release for 2021 paints an impressive picture of job growth, higher participation and salary increase. In other words: full employment is almost here. With that in mind, investors will likely cement a rate hike in March – and already begin speculating about further moves.

Will the Fed only let maturing bonds expire without buying new ones? Such a "natural roll-off" would be a light version of tightening. Or, would the bank consider actively selling some of its pandemic-era purchases, pulling money out of markets? The mere thought of Quantitative Tightening – accelerated by this jobs report – would likely boost the dollar. 

The Fed has two mandates, employment and inflation. Solid job growth and rising wages mean aggressive tightening. That holds true even if next week's inflation report falls short of the 7% now projected by markets. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD steadies near 1.0550, looks to post modest weekly gains

EUR/USD has lost its bullish momentum after having climbed above 1.0570 with the initial reaction to the US data in the American session and retreated toward the mid-1.0500s. On a weekly basis, the pair remains on track to close in positive territory. 

EUR/USD News

GBP/USD struggles to hold above 1.2300

GBP/USD struggles to hold above 1.2300

GBP/USD has edged lower following a jump above 1.2300 in the early American session on Friday. The market mood remains upbeat ahead of the weekend with Wall Street's main indexes posting strong daily gains on upbeat US data. 

GBP/USD News

Gold stays below $1,830 as US yields edge higher

Gold stays below $1,830 as US yields edge higher

Gold continues to fluctuate below $1,830 on Friday and looks to close the second straight week in negative territory. Fueled by the risk-positive market environment, the benchmark 10-year US Treasury bond yield is up more than 1% on the day, limiting XAU/USD's upside.

Gold News

Why Cardano could surprise over the weekend

Why Cardano could surprise over the weekend

ADA  set to close out the week with a gain on the workday trading week and over the weekend? Central banks signaled that the rate hike cycle is ending, meaning less stress and tight conditions for trading, opening up room for some upside potential with Cardano set to pop above $0.55 and test a significant cap.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures