Dollar Jumps After Strong NFP, Traders Abandon Bets On 50bps Fed Cut

Dollar surged across the board during early US trading after the all-around stronger-than-expected non-farm payroll report. The data showed much higher-than-anticipated job growth, a slight decrease in unemployment rate, and an acceleration in wage growth. This robust set of figures has led traders to largely abandon bets on a 50bps rate cut by Fed in November. Fed funds futures now reflect nearly a 90% probability of a 25bps cut instead.

Meanwhile, stock investors seem unfazed by the reduced chances of a larger rate cut. Stock futures climbed as investors welcomed the strong jobs growth, while bond markets saw an outflow of funds, pushing 10-year yield past 3.9% level and heading toward 4%.

Overall in the forex markets, Yen is currently the day’s worst performer, weighed down further by surging bond yields. New Zealand Dollar follows as the second weakest, with Swiss Franc also losing ground. Meanwhile, British Pound is the second strongest, boosted by BoE Chief Economist Huw Pill’s call for caution on fast rate cuts. Canadian Dollar comes in third, with Euro and Australian Dollar positioned in the middle.

In Europe, at the time of writing, FTSE is down -0.09%. DAX is up 0.69%. CAC is up 1.18%. UK 10-year yield is up 0.110 at 4.133. Germany 10-year yield is up 0.076 at 2.228. Earlier in Asia, Nikkei rose 0.22%. Hong Kong HSI rose 2.82%. China was still on holiday. Singapore Strait Times rose 0.33%. Japan 10-year JGB yield rose 0.0584 to 0.886.

US NFP jobs grow 254k in Sep, unemployment rate dips to 4.1%

US non-farm payroll employment grew 254k in September, well above expectation of 147k. That’s also higher than average monthly gain of 203k over the prior 12 months.

Unemployment rate ticked down from 4.2% to 4.1%, below expectation of 4.2%. Labor force participation rate was unchanged at 62.7%.

Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Annual average hourly earnings growth accelerated from 3.9% yoy to 4.0% yoy.

BoE’s Pill warns against cutting rates too quickly

In a speech today, Bank of England Chief Economist Huw Pill urged “caution in” reducing monetary policy restrictions, emphasizing the need for a “gradual” approach to rate cuts.

Pill highlighted that his “modal outlook” aligns with a scenario of “continued disinflation,” but warned that this depends on maintaining a “restrictive monetary policy stance to bear down on inflationary pressures.”

He stressed the importance of caution, noting there is still “ample reason” to carefully assess whether inflationary persistence is fully dissipating. While further reductions in the Bank Rate are expected if the economic and inflation outlook remains on track, Pill warned against the risk of “cutting rates either too far or too fast.”

Pill was one of the four dissenting members of the MPC who voted against BoE’s rate cut in August, underscoring his preference for a more measured approach in unwinding monetary tightening.

EUR/USD Mid-Day Outlook

Daily Pivots: (S1) 1.1008; (P) 1.1030; (R1) 1.1052; More….

EUR/USD’s break of 1.1001 cluster support (38.2% retracement of 1.0665 to 1.1213 at 1.1004) argues that whole rally from 1.0665 has completed at 1.1213. Intraday bias is back on the downside for 61.8% retracement at 1.0874 and possibly below. On the upside, above 1.1039 minor resistance will turn intraday bias neutral first.

In the bigger picture, rejection by 1.1274 resistance suggests that corrective pattern from 1.1274 (2023 high) is not completed yet. Instead, decline from 1.1213 might be another falling leg. Sustained break of 55 W EMA (now at 1.0877) will validate this case, and bring deeper fall towards 1.0447 support again.