The dollar index (DXY00) Friday fell by -0.98%, adding to Thursday’s decline of -0.71%. EUR/USD (^EURUSD) rose by +0.96%. The euro was supported by dollar weakness and was able to shake off weak Eurozone economic news. USD/JPY (^USDJPY) fell by -0.72%.
The dollar on Friday fell sharply as the weak U.S. unemployment report supported the speculation that emerged after Wednesday’s FOMC meeting that the Fed’s rate-hike regime is over. The dollar was undercut by the sharp drop in U.S. Treasury yields, which undercut the dollar’s interest rate differentials.
The 10-year T-note Friday fell by another -9 bp to a 1-1/4 month low of 4.57%, adding to the combined -28 bp plunge seen on Wednesday and Thursday. The 10-year T-note yield has now plunged by nearly one-half percentage point from 16-year high of 5.02% posted on October 23. The 2-year T-note yield Friday fell sharply by -15 bp to 4.84%.
Friday’s U.S. unemployment report showed a weaker-than-expected labor market. Oct U.S. payrolls rose by +150,000, weaker than expectations of +180,000. Also, Sep payrolls were revised lower to +297,000 from +336,000.
Meanwhile, the Oct U.S. unemployment rate rose by +0.1 points to a 1-3/4 year high of 3.9%, which showed a slightly weaker labor market than expectations for an unchanged rate of 3.8%. On the positive side for inflation, Oct average hourly earnings rose +0.2% m/m, which was slightly weaker than expectations of +0.3%, although the Oct year-on-year figure of +4.1% m/m was slightly stronger than expectations of +4.0%.
Friday’s Oct ISM services index fell by -1.8 points to 51.8, weaker than expectations for a -0.6 point decline to 53.0. Meanwhile, the final-Oct S&P U.S. Services PMI was revised lower by -0.3 points to 50.6, which was weaker than expectations for an unrevised report. The PMI reports indicated some slowing of growth in the U.S. service sector.
The markets are discounting a 5% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and an 11% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then expecting the FOMC to begin cutting rates by mid-2024 in response to an expected slowdown in the U.S. economy.
The Sep Eurozone unemployment rate rose by +0.1 point to 6.5%, which showed a slightly weaker labor market than expectations for an unchanged unemployment rate of 6.4%.
The German trade report showed economic weakness, with Sep exports falling -2.4% m/m and imports falling -1.7% m/m, weaker than expectations of -2.0% and -0.1%, respectively. The Sep trade surplus of 16.5 billion euros was slightly larger than expectations of 16.3 billion euros, but was down from Aug’s revised 17.7 billion euros.
French Sep industrial production fell -0.5% m/m and -0.1% y/y, weaker than expectations of unchanged for both figures. Sep manufacturing production fell -0.4% m/m and -0.9% y/y, weaker than expectations of +0.1% m/m.
December gold (GCZ3) Friday closed up +5.70 (+0.29%), and Dec silver (SIZ23) closed up +0.439 (+1.92%). Precious metals prices received a boost from Friday’s U.S. unemployment report, which suggested that the Fed’s rate-hike regime is over and sparked a sharp drop in U.S. Treasury yields.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
