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Dollar Soars, Fed, BoJ and Obama All Benefit from Strong Jobs Number

Last updated 2/3/2012 9:20 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Everyone from the Federal Reserve to the Bank of Japan and President Obama will breathe a sigh a relief after seeing today’s jobs report. Thanks to a 243k increase in non-farm payrolls, the unemployment rate has fallen for the fifth consecutive month to 8.3 percent, the lowest level in nearly 3 years. Going into this morning’s jobs number, everyone from economists to investors had expected job growth to slow but instead, it grew by 50 percent more than the previous month. The Federal Reserve had their gun locked and loaded and were ready to pull the trigger on QE3 if payrolls rose less than 100k but after seeing today’s non-farm payrolls numbers, they will be able to save their bullets for an European implosion. It is no longer necessary for the Federal Reserve to announce another round of asset purchases next month unless they felt that the U.S. economy desperately needed a jolt of stimulus but at this point if the Fed were to increase monetary stimulus, investors would question their credibility and wonder if there is more underlying weakness. Considering that many investors had expected the Fed to increase asset purchases next month, the sharp rally in the U.S. dollar following the jobs number reflects a rush to adjust expectations and positioning. The Bank of Japan and the Ministry of Finance will be rejoicing because the Japanese are the single biggest beneficiaries of today’s strong jobs number. If non-farm payrolls were abysmally weak, USD/JPY would have probably broken below 76, forcing the MoF to intervene in the Yen but now, the pressure to intervene has been instantly lifted. President Obama’s chance of reelection has also increased thanks to the decline in the unemployment rate. If come November, the jobless rate is below 8 percent, President Obama will be a shoo-in for reelection. Aside from the stronger rise in payrolls and the decline in the unemployment rate, average hourly earnings grew by 0.2 percent, up from 0.1 percent while average weekly hours held steady at 34.5.

Today’s jobs number shows a labor market and an economy on its way to recovery but given the grim forecasts of the Federal Reserve, we can’t help but look at the data with a tinge of skepticism. According to their latest economic forecasts, the unemployment rate this year is expected to be somewhere between 8.2 and 8.5 percent. With the jobless rate now at 8.3 percent, this means that the Fed has either underestimated the strength of the labor market or the positive momentum in job growth will begin to fade quickly. For the average American, it is still difficult to attain jobs and many would even argue that it feels like the U.S. is still in recession. Until this mindset reverses, the Fed will not be able to tighten monetary policy. 

The U.S. dollar is trading higher against all of the major currencies following the non-farm payrolls report but we believe that once equities open for trading, risk appetite will lend support to the euro and other higher yielding currencies.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.