NFP Quick Analysis: Greenback comeback set to extend, still the cleanest shirt in a dirty pile

  • The US gained 128,000 jobs in October, on top of significant revisions. 
  • The Federal Reserve is unlikely to raise rates, but its rate cut is also far. 
  • The US Dollar may extend its recovery.

The world's largest economy gained 128,000 jobs in October, better than 89,000 projected. Low estimated is the result of the strike at General Motors, which caused a significant drop in manufacturing jobs. 

The best news comes from the revisions – October's gains come on top of 95,000 job gains previously unaccounted for in the previous two months. The US labor market is alive and kicking

Wages rose by 0.2% last month, marginally below 0.3% expected but still pushing the annual increase to 3%. Other figures were broadly in line with expectations. 

Lower chances of a rate cut – USD positive

The upbeat figures triggered a greenback comeback – the dollar had been suffering after the dovish rate decision. 

Earlier this week, the Federal Reserve has cut interest rates and signaled a pause – as expected. The dollar initially advanced but then tumbled down. Jerome Powell, Chair of the Federal Reserve, said that a "material reassessment" of the outlook is needed for cuts, ostensibly setting a high bar.

However, he then added that only a sustainable rise in inflation is needed for the Fed to raise rates – an even higher bar. A change to the outlook is sufficient for a cut while only seeing the "white in inflation eyes" would convince policymakers to hike rates again.

The dollar's suffering may end for now. While the Federal Reserve's high bar for tightening policy is unlikely to be met, that "material reassessment" toward a rate cut is now moving away. 

Moreover, the NFP proves that the US economy remains the cleanest shirt in the dirty pile. The figures come after the euro-zone reported an unexpected increase in employment, as Brexit uncertainty engulfs the UK, and as the Bank of Japan is running out of ammunition to stimulate the economy. 

All in all, the US economy – and labor market – stand out and may allow the dollar to extend its recovery. 

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