Greenback jumps after strong US payrolls report 

[NEW YORK] The US dollar index surged on Friday (Nov 6) and was poised for its biggest daily percentage gain in nearly five months. This was after a stronger-than-expected American payrolls report solidified expectations for a rate hike from the Federal Reserve next month.

The Labor Department said US nonfarm payrolls jumped by 165,000 jobs last month, topping the 65,000 estimate of economists polled by Reuters, after an upwardly revised 60,000 gain in September. The unemployment rate dipped to 4.1 per cent.

The report gives the Fed latitude to continue to hike interest rates. Market expectations for an increase of at least 25 basis points at the central bank’s December meeting moved back up towards 80 per cent in the wake of the report, the CME FedWatch Tool showed.

The US dollar index, which measures the greenback against a basket of currencies, surged 0.77 per cent to 102.26, with the euro tumbling 0.67 per cent to US$1.11437. The American currency was set for its biggest daily percentage gain since Jun 17, while the euro was on pace for its biggest daily drop since Oct 1.

For the week, the US dollar was up 0.3 per cent, while the euro shed 0.1 per cent and was on track for a third straight weekly decline.

Expectations the Fed would hike next month had fallen to about 67 per cent on Thursday as US equities plummeted, with the S&P 500 wiping out about US$3 trillion in market value.

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The Nasdaq, meanwhile, suffered its biggest one-day percentage drop in 19 months on fears that tougher government regulations on the artificial intelligence build-out after the US midterm elections would stunt economic growth.

Democrats are planning to unleash a flood of new legislation targeting AI systems and data-centre development when they take control of the US Congress in January, lawmakers, congressional aides and advocates said.

The US dollar was higher before the jobs data release, buoyed by safe-haven demand as the sell-off in AI stocks spread worldwide. However, US stocks had stabilised by the opening bell, and the Nasdaq rallied more than 1 per cent heading into the latter stages of the trading day.

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Treasury yields moved higher in the wake of the jobs report, with the 10-year yield up 1.6 basis points at 4.85 per cent and the two-year yield rising 4.1 basis points to 4.52 per cent.

“It’s the same old conversation of, at any given moment, is the US dollar trading more on a safe-haven basis, or is it trading more on an interest-rate differential basis?” said Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut.

“And those things, sometimes it’s one or the other, and they can be completely at odds with one another, and it’s not really rational.”

He added: “Now that the dust is kind of settling a little bit, the market’s digesting the new normal for the next two years, I would argue that the correlations should start being a little more rational again going forward.”

Comments from Fed officials on Friday supported views for a rate hike. John Williams, president of the New York Federal Reserve, said that US economic growth has remained remarkably resilient in the face of successive shocks, but inflation is too high and it is essential to bring it back to 2 per cent.

Separately, St Louis Federal Reserve president Alberto Musalem said that inflation remains a top concern in conversations he has with businesses in his Midwestern district.

Mary Daly, president of the Federal Reserve Bank of San Francisco, said the Fed will likely still need to hike rates further even with the “painful” tech stock sell-off.

Sterling tumbled 0.71 per cent, on pace for its biggest daily drop since Sep 23, to US$1.3355, pulling back following a climb to a more than seven-week high on Thursday after the Bank of England raised interest rates for the first time in over three years.

The pound was off nearly 0.3 per cent on the week, and set for its first weekly decline after notching gains for three straight weeks.

The Japanese yen weakened 0.47 per cent against the greenback to 158.43. Japanese Prime Minister Sanae Takaichi unveiled a plan to tap proceeds from the Bank of Japan’s sales of exchange-traded funds to finance her flagship investment projects, as the AI-fuelled market rout threatened to dent tax revenue.

Bank of Japan governor Kazuo Ueda said the central bank expects underlying inflation to stay around its 2 per cent target but recognises there are “some upside risks”.

The yen was off nearly 0.6 per cent on the week, which would mark its biggest weekly percentage decline since a drop of more than 2 per cent in the week ended Sep 18. REUTERS