Dollar Rebounds On Strong U.S. Jobs Reading

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Another above-consensus U.S. labour market report has propelled the Dollar higher into the weekend.

The Pound to Dollar exchange rate fell by two-thirds of a per cent in the minutes following news the U.S. added 199K non-farm jobs in November, exceeding the market's expectation for 180K and representing a noticeable pickup on October's 150K.

The Dollar was bid as market-implied expectations for the first U.S. Federal Reserve rate cut of 2024 receded, thereby supporting bond yields.

The unemployment rate fell to 3.7% from 3.9%, defying expectations for an unchanged figure. 

"Today’s November jobs report showed there is still some sizzle left in the labour market with wage growth accelerating and the unemployment rate edging down," says Ali Jaffery, an economist at CIBC.

For the Fed to consider cutting interest rates in the coming months policymakers will likely require the unemployment rate to be heading higher, as this implies a loosening in labour market conditions.

But the jobs market is tight, with wages also surprising: average hourly earnings rose 0.4% month-on-month in November, exceeding the estimated 0.3% and accelerating on October's 0.2%.

The Fed will be concerned that the labour market is tight enough to keep pay rates elevated, ensuring inflation remains above the 2.0% target for an extended period.

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The data will underscore the Fed's message that interest rates must stay higher for longer, which ultimately supports U.S. yields and the Dollar.

"Today’s report will certainly raise some eyebrows in the FOMC and is a reminder that the labour market remains tight. But with inflation persistence less of a challenge, the Fed will continue to remain patient," says Jaffery.

The data is not enough to signal any major shift that should be expected from the Fed, but it is enough to confirm the recent Pound-Dollar uptrend is over, at least for now.