Nonfarm Payrolls Quick Analysis: US Dollar set to extend slide as soft-landing scenario takes shape

• The US economy gained only 150,000 jobs in October, below 180,000 expected. 
• Expectations for a rate hike in December remain low, and for good reasons.
• There is room for more US Dollar weakness and stock strength. 

Say cheese and smile – the US seems to be experiencing a soft landing, the perfect scenario for stocks and the worst for the US Dollar. The Greenback had already been suffering, and there may be more in store.

The US reported an increase of only 150,000 jobs in October, slower than the pre-pandemic gains of just under 200,000 but not pointing to a recession. Revisions for September shed another 39,000 positions. The unemployment rate rose to 3.9%, worse than expected but still strong in absolute terms. 

Wage growth was mixed – the 0.2% MoM gain missed estimates, but YoY, salaries advanced by 4.1%, above the 4% expected. Nevertheless, this is a labor market that is gradually cooling down. 

The data is weak enough to reduce the chances of a rate hike – it cements the end of the tightening cycle. That is adverse for the US Dollar. The figures are neither too weak, causing investors to flee to the safety of the Greenback. 

For stocks, it is the perfect scenario – the economy is not too hot to trigger hikes nor too cold to trim profits. For Gold, falling Treasury yields are a boon, yet events in the Middle East are also eyed. 

The current moves also match the trend seen beforehand. 

Earlier this week, the Federal Reserve (Fed) left interest rates unchanged for the second consecutive time, as expected. Chair Jerome Powell refused to say the hiking cycle has finished, but he did note that inflation risks are more balanced. The gradual decline in wage growth, seen in the NFP vindicates his more balanced approach.

No less importantly, US bonds have caught a bid – less debt issuance by the Treasury, a perceived dovish stance from the Fed – and also comments from prominent market participants about the end of bond rout all contributed to the decline. The trend in favor of buying bonds – thus pushing yields down – is strong and unlikely to be affected by the jobs report. 

All in all, there is room for the risk-on mood to continue.