Dollar tumbles as U.S. nonfarm payrolls show mixed picture

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar slumped on Friday after the U.S. nonfarm payrolls report for October showed the world’s largest economy created more new jobs than expected, but also flashed signs of slowdown with the higher unemployment rate and lower wage inflation.

The greenback initially rose immediately after the data, but fell as market participants digested the jobs report, noting that the data was not all positive and supports the view that the Federal Reserve could slow the pace of future rate hikes.

U.S. nonfarm payrolls increased 261,000 last month, data showed on Friday. Data for September was revised higher to show 315,000 jobs added instead of 263,000 as previously reported. Economists polled by Reuters had forecast 200,000 jobs, with estimates ranging from 120,000 to 300,000.

However, the unemployment rate rose to 3.7% from September’s 3.5%. Average hourly earnings increased 0.4% after rising 0.3% in September, but the rise in wages slowed to 4.7% year-on-year in October after advancing 5.0% in September.

The fed funds futures on Friday priced in a 51.5% chance of a 75-basis-point interest rate hike next month, and a 48.5% probability of a 50-basis-point increase. The odds of a 75-basis-point rise went as high as 64% immediately after the data.

The Fed’s terminal rate, or the level at which rates would peak, slipped to 5.16% after the payrolls data, from about 5.2% just before.

“Although today’s report is a pretty mixed bag overall, we do not see how the Fed can look at this data and think that they are making meaningful progress towards getting inflation under control,” said Thomas Simons, money market economist, at Jefferies in New York.

“Payroll growth is slowing and wage growth is decelerating, but neither one is slowing fast enough. Today’s data leaves the possibility of another 75-bp rate hike firmly on the table for the December FOMC meeting, though obviously we have several other important data releases between now and then.”

Despite the strong jobs data, Fed officials on Friday said a smaller rate increase is still on the table for the December policy meeting.

The jobs numbers show “the labor market remains tight,” Richmond Fed President Thomas Barkin told broadcaster CNBC soon after the release of the data, adding that he nevertheless is ready to act more “deliberatively” on the pace of future rate increases even as he keeps an open mind on the outcome of the next policy meeting in December.

“When you get your foot on the brake, you think about steering in a very different way … sometimes you act a little bit more deliberatively, and I’m ready to do that,” Barkin said. “And I think the implication of that is probably a slower rate of pace of rate increases, a longer pace of rate increases and potentially a higher end point.”

The dollar fell 0.8% against the yen to 147.06 yen, while the euro rose 1.7% to $0.9920.

The dollar index, a measure of the greenback’s value against six major currencies, rose 1.6% to 111.17. On the week, the index was down 0.5%.

The U.S. currency firmed on Wednesday and Thursday after Fed Chair Jerome Powell on Wednesday said the central bank could continue to increase rates if inflation doesn’t slow, causing markets to price in a higher peak for U.S. rates.

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Currency bid prices at 1:42PM (1742 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 111.2000 112.9700 -1.55% 16.241% +112.9900 +110.9500

Euro/Dollar $0.9915 $0.9750 +1.74% -12.75% +$0.9941 +$0.9745

Dollar/Yen 147.0150 148.2600 -0.84% +27.70% +148.3950 +146.5700

Euro/Yen 145.78 144.55 +0.85% +11.86% +145.9600 +144.2400

Dollar/Swiss 0.9969 1.0138 -1.68% +9.27% +1.0143 +0.9942

Sterling/Dollar $1.1312 $1.1159 +1.39% -16.34% +$1.1336 +$1.1150

Dollar/Canadian 1.3511 1.3750 -1.74% +6.85% +1.3750 +1.3468

Aussie/Dollar $0.6449 $0.6288 +2.59% -11.25% +$0.6477 +$0.6285

Euro/Swiss 0.9883 0.9879 +0.04% -4.69% +0.9894 +0.9848

Euro/Sterling 0.8765 0.8736 +0.33% +4.32% +0.8785 +0.8700

NZ $0.5903 $0.5776 +2.28% -13.70% +$0.5918 +$0.5756

Dollar/Dollar

Dollar/Norway 10.2695 10.5725 -2.64% +16.84% +10.5775 +10.2300

Euro/Norway 10.1854 10.3123 -1.23% +1.72% +10.3264 +10.1570

Dollar/Sweden 10.9442 11.1648 -0.62% +21.36% +11.2050 +10.8995

Euro/Sweden 10.8521 10.9201 -0.62% +6.04% +10.9237 +10.8302

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Joice Alves and Alun John in London; Editing by Kirsten Donovan, Jonathan Oatis and Chizu Nomiyama)