Dollar Rally Shows Investors Aren’t Worried About NFP Miss

The U.S. Dollar survived an early attempt at a new low for the week against a basket of major currencies to close higher for the session on Friday. The catalyst behind the rally was the U.S. Non-Farm Payrolls report which investors believe came in strong enough to keep the U.S. Federal Reserve on track to raise interest rates at least three times in 2018.

March U.S. Dollar Index futures closed at 91.673, up 0.092 or +0.10%.

A weaker Euro was the biggest influence on the movement in the dollar index. The EUR/USD settled at 1.2030, down 0.0037 or -0.31%. Rising yields helped make U.S. Treasurys a more attractive investment over the German Bund.

A widening of the spread between U.S. Government Bonds and Japanese Government Bonds also helped drive the USD/JPY higher.

U.S. Economic Data

There were several U.S. economic reports on Friday, but the highlight of the trading day was the U.S. Non-Farm Payrolls report.

U.S. Non-Farm Payrolls came in weaker-than-expected in December, however, this news didn’t seem to rattle investors.

Government data showed payrolls increased by 148,000 jobs last month. Economists were looking for job gains of 190,000. Employment data for October and November were revised to show 9,000 fewer jobs created than previously reported.

The Unemployment Rate remained at 4.1%, meeting expectations. Average Hourly Earnings hit the forecast and that was perceived as good news by traders. Wages rose 9 cents, or 0.3 percent, in December after gaining 0.1 percent in the prior month. That lifted the annual increase in wages to 2.5 percent from 2.4 percent in November.

In other news, the U.S. trade deficit increased more than expected in November as imports of goods surged to a record high amid strong domestic demand, making it likely that trade will subtract from economic growth in the fourth quarter.

According to the Commerce Department, the trade gap widened 3.2 percent to $50.5 billion. That was the highest level since January 2012 and followed an upwardly revised $48.9 billion shortfall in October. Economists were looking for a $49.5 billion increase in November after a previously reported $48.7 billion deficit in the prior month.

ISM Non-Manufacturing PMI came in below expectations at 55.9. Traders were looking for a reading of 57.6. The previous report showed a reading of 57.4. Factory Orders rose 1.3%, better than the 1.1% estimate. Last month’s report was revised higher to 57.4.

Finally, Cleveland Fed President Loretta Mester said Friday’s jobs report, which missed the estimates, was nevertheless “strong.” Mester also said she believes three to four interest rate hikes would be appropriate this year.

“I think it’s a strong report,” Mester told CNBC in a live interview from Philadelphia. “I think we’re basically at maximum employment from the view of monetary policy. But that doesn’t mean it triggers a necessary reaction.”

Mester is one of the Fed’s more hawkish members. She will also be a voting member this year on the Federal Open Market Committee.