Jobs-led Rate Hike Worries Push Dollar Higher

(RTTNews) - The U.S. Dollar extended gains against major currencies during the week ended November 6 amidst a massive spike in non-farm payrolls in the U.S. The better-than-expected jobs data increased the headroom available to the Federal Reserve to raise rates, bolstering the greenback. The payrolls-driven rally more than offset the dollar's decline that followed the midterm election results.

Key economic data releases in the past week, particularly the upbeat labor market update revealed a resilient U.S. economy. With markets anticipating a tighter monetary policy framework, the U.S. dollar inter alia rallied against the euro, the British pound, the Australian dollar, the Japanese yen, the Swedish krona and the Canadian dollar. It however declined against the Swiss franc. The 6-currency Dollar Index jumped almost half a percent over the course of the week. Here is a quick recap of the dollar's trajectory during the week ended November 6.

Data released on Monday showed the ISM Manufacturing PMI rising to 55.5 in October from 54.5 in September and surpassing market expectations of 54.6 percent. The JOLTs report released on Tuesday showed job openings increasing to 7.52 million in September from a revised 7.19 million in the previous month and market expectations of 7.10 million. Data released on Wednesday showed the ISM Services PMI declining to 54.5 in October from 54.9 in September. Markets had only expected it to edge down to 54.8 percent.

The midterm election results also swayed currency market sentiment. Riding a massive blue wave, the Democrats secured control of both chambers of Congress. The dollar slumped as markets priced in a constrained fiscal expansion.

Data released by the U.S. Bureau of Labor Statistics on Friday morning showed an addition of 165 thousand to non-farm payrolls in October versus 60 thousand in the previous month and market expectations of 65 thousand. The unemployment rate which was expected to remain steady at 4.2 percent also unexpectedly declined to 4.1 percent.

Following the data release, the CME FedWatch tool that tracks the expectations of interest rate traders showed the likelihood of a quarter percentage rate hike by the Fed in December increasing to 76.3 percent by Friday from 74.4 percent on Monday.

Amidst the developments, the Dollar Index, a measure of the U.S. dollar's strength against a basket of 6 currencies ranged between the low of 101.10 recorded on Wednesday and the high of 102.36 on Friday. The Dollar Index, which had closed at 101.88 on October 30, finished trading at 102.30 a week later. The index added 0.41 percent during the week ended November 6.

With the EUR/USD pair slipping 0.14 percent in the past week, the dollar recorded its third straight weekly gain against the euro. During the week ended November 6, the EUR/USD pair dropped to 1.1144, from 1.1160 a week earlier. The pair ranged between a weekly high of $1.1273 recorded on Wednesday and a weekly low of $1.1131, recorded on Friday. Data released during the week had showed flash inflation readings for October recording 4 percent as expected and surpassing the previous reading of 3.8 percent.

The week ended November 6 also witnessed the pound edging down 0.31 percent against the dollar. The sterling, which had closed at $1.3392 on October 30 declined to $1.3350 by November 6. The sterling declined despite the Bank of England raising rates by a quarter percent point. The GBP/USD pair traded between a high of 1.3508 recorded on Thursday and a low of 1.3341, recorded on Friday.

Amidst the U.S. dollar's resilience, the risk-sensitive Aussie also plummeted against the U.S. Dollar during the week ended November 6. The slippage for the AUD/USD pair during the week was 2.37 percent, from 0.7033 on October 30 to 0.6866 on November 6. The pair traded between the week's high of 0.7036 recorded on Monday and the week's low of 0.6854 recorded on Friday. The week witnessed Reserve Bank of Australia increasing rates by a quarter percent to 4.85 percent, matching market expectations.

With the dollar staging an emphatic rebound, the Japanese yen also plunged 0.59 percent against the U.S. dollar during the week ended November 6. The USD/JPY pair which had closed at 157.55 on October 30, increased to 158.48 in a week's time. During the week, the pair ranged between the week's high of 158.77 touched on Tuesday and the week's low of 157.24 recorded on Friday.

Currency market sentiment in favor of the U.S. dollar has decreased drastically on Monday. Caution prevails ahead of the release of the consumer price inflation readings on Tuesday and the producer price inflation readings on Friday. The six-currency Dollar Index traded between 101.79 and 101.91 on Monday. It is currently trading at 101.89 versus the close of 102.30 on Friday, implying an overnight decline of 0.40 percent.

Amidst the greenback's retreat, the common currency has rebounded, lifting the EUR/USD pair to 1.1187 from 1.1144 at close on Friday.

With a pause in the dollar's momentum, the GBP/USD pair has also surged to 1.3415 from 1.3350 at the end of the previous week. Likewise, the AUD/USD pair which was at 0.6866 at close on Friday has jumped to 0.6895. The USD/JPY pair has declined, decreasing to 158.01 from 158.48 at close on Friday.