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Non-farm payrolls for October came in surprisingly strong earlier today, with 204,000 jobs added last month versus expectations for a 120,000 gain. That has sparked demand for US dollars in the forex market, as traders speculated that the signs of improvement in the labour market increase the chances of a Fed taper.
By mid-afternoon in New York, EUR/USD was down 0.45% at 1.3357 (also pressured by S&P lowering its credit rating for France), while GBP/USD fell 0.61% and the dollar gained more than 1% against the Japanese yen. The dollar index, a gauge of the dollar’s strength against six major currencies, rose 0.64%.
The fall in the euro means that the common-currency has weakened more than 3% against the dollar in the last two weeks.
Last month’s partial government shutdown was expected to have constrained job growth, with an increase of 175,000 being the highest forecast in a Bloomberg survey of economists . The size of the growth in payrolls therefore took the market by surprise and, coming hot on the heels of yesterday’s unexpectedly large expansion in GDP, it has led to taper expectations being shortened, with some speculation that the December FOMC meeting, when the Fed next meets, could be a candidate for the introduction of a reduction in stimulus.
The Fed will want compelling evidence of a continuing trend of improvement in the unemployment rate, not just in payrolls growth, in order to take the plunge and begin to tighten the tap, though, and with the next Fed meeting under six weeks away, I think December remains no more than an outside chance.