Dollar Rises on Improving Inflation, Falls on North Korean Concerns

The financial markets were mixed on Friday after headline data showed the U.S. economy lost jobs last month due to the impact of Hurricanes Harvey and Irma. However, the details of the report such as average wage growth and the unemployment rate suggested an improving labor market.

Looking at the broad asset classes, the U.S. Dollar weakened, U.S. Treasurys fell, gold was flat and U.S. stock indexes were mixed.

The Labor Department report showed nonfarm payrolls fell by 33,000 jobs last month amid a record drop in employment in the leisure and hospitality sector. But the unemployment rate fell to 4.2 percent, the lowest since February 2001.

On an annualized basis, average hourly earnings rose to 2.9%. In September they increased 12 cents, or 0.5 percent. The figures for August were revised 0.2 percent.

Economists had forecast a gain of 90,000 jobs in September. The unemployment rate was estimated at 4.4%. Month over month average hourly earnings were forecast at 0.3% and year over year hourly earnings were estimated at 2.5%.

U.S. Dollar and Forecast

The U.S. Dollar initially rose against a basket of currencies in response to the unexpected rise in wages, however, gains were offset by a report that North Korea is preparing to test a long-range missile.

The USD/JPY rose to a more than two-month high and the EUR/USD fell to a seven week low as wage data from the September jobs report was seen as a sign of potentially improving inflation.

The dollar gave up its early gains, however, after the RIA news agency cited a Russian lawmaker’s comments on a North Korea missile test, which the rogue nation believes can reach the U.S. West Coast.

U.S. Treasury Markets

U.S. Treasury instruments fell after metrics in the latest Labor Department jobs report showed emerging signs of inflation. Following the report, the 2-year Treasury note hit a high of 1.52 percent, its highest since 2008. The 10-year yield also hit a high of 2.393 percent shortly after the release of the labor report. This was its highest level in nearly three months. The yield on the 30-year Treasury bond was up slightly at 2.9 percent.

U.S. Equity Markets

The mixed employment data, concerns over North Korea and position-squaring ahead of earnings season encouraged investors to pare positions on Friday.

After a week of activity that featured all the major indexes reaching record highs, the blue chip Dow Jones Industrial Average closed lower, ending a seven-day winning streak. The benchmark S&P 500 snapped an eight-day winning streak while the NASDAQ Composite rose to a record high.

Gold

Gold finished higher after rebounding from a two-month low on Friday. Traders pressured the market early in reaction to the increase in average hourly earnings which drove up the chances of a Fed rate hike. However, losses were limited and shorts scrambled to cover positions on reports that North Korea was planning another long-range missile test.

Crude Oil

U.S. West Texas Intermediate crude oil fell nearly 3.00 percent and international-benchmark Brent crude ended over 2.00 percent lower on profit-taking tied to concerns over the supply glut.

The market was supported early in the session in reaction to potentially bullish remarkets from Russia and OPEC supporting an extension of the plan to limit production. However, prices began to tumble after Russia clarified remarks on the oil market made by President Vladimir Putin earlier in the week, saying he did not propose extending a global oil output cut deal but said he recognized it was a possibility.