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US Dollar rallies as NFP confirms Fed’s steady for longer, paring back quick rate cut bets


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  • The US Dollar (Index) jumps over 0.50% on Friday in the  aftermath of NFP numbers.
  • Traders see Unemployment rate fall to 3.7%, below 3.9% estimate.
  • The US Dollar Index pops back up towards 104.

The US Dollar (USD) is brushing off the Japanese crisis it had on Thursday. At one given point the Japanese Yen was up 4% against the Greenback. The strong US Jobs Report print though, washes off that devaluation and puts the US Dollar back on the map with traders backtracking on earlier bets of quicker cuts from the US Federal Reserve. 

On the economic front, the Unemployment rate is taking up all the attention. A drop from 3.9% to 3.7% is a much telling sign on how strong and tight the labor market still is. Fast forward now to the University Prelimenary numbers for December to look for confirmation and possible another leg higher in the US Dollar Index. 

Daily digest: Monthly wage rise supports Fed’s hold

  • The US Nonfarm Payrolls report mostly in line with some small positive upticks:
    1. Nonfarm payrolls number for November went from 150,000 to 199,000, above the 183,000 consensus.
    2. Monthly Average Hourly Earnings went higher, from 0.2% to 0.4%
    3. Yearly Average Hourly Earnings went a little lower, from 4.1% to 4%.
    4. The US Unemployment Rate for November contracted further from 3.9% to 3.7%
  • Near 15:00 GMT the University of Michigan will release its preliminary data findings for December:
    1. The Sentiment Index is expected to head from 61.3 to 62.
    2. The Inflation expectations are set to head from 3.2% to 3.1%.
  • European and US equities are looking for direction in the aftermath of the US Jobs Report. US equities are not digesting it all to well and are in the red, less than 1%.
  • The CME Group’s FedWatch Tool shows that markets are pricing in a 97.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week.  
  • The benchmark 10-year US Treasury Note jumps to 4.21% and erases earlier pressure on rate cuts. 

US Dollar Index technical analysis: Upbeat wages means steady for longer

The US Dollar is stuck on a crucial crossroads that might trigger either substantially more and longer-term US Dollar appreciation or devaluation. In the runup towards Super Wednesday and Super Thursday when markets will hear from no less than four of the biggest central banks in the world, it looks like the Greenback might reestablish its label as King Dollar. Traders looking for clues would best keep an eye on the spread between the US 2-year yield and the German 2-year yield, which has been getting wider – a situation which is correlated with a stronger US Dollar. 

The DXY is bouncing back up again after the decline on Thursday where the Japanese Yen appreciation was just too much to bear. The DXY could still make it further up, should employment data trigger a spike in US yields again. A two-tiered move – first with NFP and then University of Michigan numbers – could move the DXY back above 104.28, with the 200-day and 100-day Simple Moving Averages (SMA) turned over to support levels. 

To the downside, the 200-day SMA has done a tremendous job in supporting the DXY with buyers coming in below 103.56 and pushing it back towards that same level near the US closing bell. If it fails this Friday, the lows of November near 102.46 is a level to watch. More downside pressure could bring into view the 100 marker, in a case where US yields sink below 4%.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.