Sky is the limit for US labour market – MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that the US dollar is deriving support from the release of the latest stronger than expected non-farm payrolls report which provided further confirmation that the US labour is continuing to improve.

Key Quotes

“The US dollar has continued to rebound modestly in the Asian trading session strengthening most notably against the South Korean won. It follows last week’s sharp sell off after the disappointing ECB policy meeting which triggered an abrupt liquidation of long US dollar positions.”

“The establishment survey revealed that the US economy added another solid 211k jobs in November following an upwardly revised robust gain of 298k jobs in October. Over the last four months the US economy has added on average just over 200k jobs per month providing further reassurance that employment weakness recorded in August and October was just temporary and has since been corrected.”

“The pace of employment growth continues to run well above labour force growth resulting in a tightening of labour market conditions. Fed Chair Yellen stated last week that “to simply provide jobs for those who are newly entering the labour force probably requires fewer than 100,000 jobs per month”. Evidence of a pick-up in wage growth is continuing to build as well. Average hourly earnings for all employees in the private sector have increased by an annualized rate of 2.9% in the four months to the end of November which compares to 2.6% in the same period of last year.”

“Overall the report should remove almost all remaining doubt that the Fed will begin to raise interest rates this month for the first time since July 2006. There was limited initial reaction to the report in the US fixed income market after yields had already adjusted sharply higher following the less dovish than expected ECB meeting.”

“Still the continued solid pace of improvement in the US labour market should keep upward pressure on US yields especially at the short end of the curve increasing the likelihood that the Fed will raise interest rates more quickly than the market is currently expecting in the coming years.”

Lee Hardman, Currency Analyst at MUFG, notes that the US dollar is deriving support from the release of the latest stronger than expected non-farm payrolls report which provided further confirmation that the US labour is continuing to improve.

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