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Solid U.S. Jobs Data Keeps Fed on Track for Future Rate Hikes

By:
James Hyerczyk
Updated: Jan 6, 2017, 20:37 UTC

The U.S. Dollar rose against a basket of currencies on Friday as traders reacted to a solid U.S. Non-Farm Labor report. Despite the strong comeback, the

rates

The U.S. Dollar rose against a basket of currencies on Friday as traders reacted to a solid U.S. Non-Farm Labor report. Despite the strong comeback, the Greenback is still in a position to close lower for a second consecutive week. Earlier in the week, the dollar caved from pressure caused by mixed U.S. economic data and heavy selling in China.

The March U.S. Dollar Index gained ground in reaction to the U.S. jobs report that showed the economy added fewer jobs than expected in December, but an improvement in wages. The data was strong enough to convince investors that the economy was strong enough to raise interest rates later this year.

According to the Labor Department, the headline number showed the economy added 156K jobs in December. Traders were looking for 175K. The Unemployment Rate rose from 4.6% to 4.7% as expected. Average Hourly Earnings rose 0.4%, up from -0.1% and better than the 0.3% estimate.

There were also revisions in the report. October and November figures were revised to show 19,000 more jobs were added than previously reported. Finally, the government said the U.S. economy created 2.16 million jobs in 2016 with the year-on-year increase in average hourly earnings rising to 2.9%.

The jump in Average Hourly Earnings was most impressive because a 2.9% annual increase is higher than the 2.0% Fed inflation target. This will encourage the Fed to raise rates perhaps as many as three times in 2017.

Gold and Other Metals

February Comex Gold futures closed lower on Friday amid profit-taking by investors who bought earlier in the week as a hedge against a bearish jobs report. Gold was still in a position to close higher for the week by about 2.2 percent. It was primarily helped by a weaker U.S. Dollar and weaker U.S. Treasury yields.

On Friday, the dollar rallied, pressuring the dollar-denominated gold market. We don’t know if this will turn into a new down trend, but investors reacted as if taking profits was the right thing to do at this time.

March Palladium futures hit a five-week high as investors continued to react the news from earlier in the week that showed U.S. sales of new cars and trucks hit a record high in 2016. Palladium is a key component in the manufacturing of automobile catalytic convertors.

U.S. Equity Markets

The three major U.S. stock indices rose on Friday with the cash S&P 500 and cash NASDAQ Composite Indexes reaching new all-time highs. The cash Dow Jones Industrial Average was up, but missed hitting the historical 20,000 level by only a fraction.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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