Dollar Up Against Major Currencies, bolstered by Strong U.S. Jobs Data

The Forex and commodity markets reacted in almost textbook fashion to the bullish U.S. Non-Farm Payrolls report on Friday, with the EUR/USD. GBP/USD, gold and crude oil markets all plunging on the news. The strength of the report likely means the Fed will raise rates in December.

U.S Treasury yields jumped after the government reported the economy added more jobs than expected in October. This led to greater demand for the U.S. Dollar, pressuring the Euro and British Pound. Both currencies were in a weak state even before the release of the jobs data.

Besides the threat of a U.S. interest rate hike, the Euro was under pressure because of the strong possibility of additional stimulus next month. The European Central Bank is widely expected to either expand or extend its current 1.1 trillion Euro stimulus program. The British Pound was also weaker ahead of the jobs report because the Bank of England said on Thursday that a rate hike may not take place until late 2016.

December Comex Gold futures also opened the session, having traded sharply lower since the release of a hawkish monetary policy statement on October 28. After a few days of consolidation, today’s report triggered a resumption of the selling pressure.

December Crude Oil was also sharply lower because a stronger dollar usually leads to lower commodity prices and a drop in demand for foreign buyers. The market finished the week lower, but range bound.

Data released on Friday showed non-farm payrolls increased 271,000 last month, the largest increase since December 2014. Economists had priced in a 179,000 new jobs.

The U.S. unemployment rate fell to 5.0 percent, the lowest level since April 2008, from 5.1 percent in September. This is the level that the Fed feels represents full employment.

Average Hourly Earnings also came out stronger than expected at 0.4% versus an estimate of 0.2%. This represents an annual increase of greater than 2.0%. This report is used by the Fed as an inflation indicator.

Currency and commodity markets could continue to fall next week because of the momentum created by the strong jobs report. The price action indicates that there is renewed appetite for U.S. dollars.