From Monday to Thursday the Dollar moved ahead helped by a growing perception that the US economy might not be so bad after all. Although there were the usual reminders that the housing market is in a bad way, investors were looking ahead to the important employment data that are always released on the first Friday of the month. After a -4,000 fall in non-farm payrolls in August a rebound was on the cards. The consensus was for +100,000 new jobs in September.
As it turned out the figure was +110,000. To make it even better the previous month’s -4k fall was revised to show a +89k increase. And to make it worse, the figures for the 12 months to March were revised lower by a total of 297,000. The market was confused. The Dollar gained a cent immediately and lost it almost as quickly. There are two main concerns; one, that the employment data are unreliable; two, that job creation is no longer keeping pace with the demographics. About 150,000 people come into the US labour market every month. Fewer new jobs than will mean rising unemployment and a slowing economy.
The Bank of England’s decision to leave interest rates unchanged was positive for Sterling. There will probably be a rate cut before the end of the year but at least it will not happen for another month.
Investors are unsure about the Dollar right now. Last week’s correction was arguably overdue but it was not very convincing.
With Sterling less than three cents away from its long term high, buyers of the Dollar should be hedging their exposure and buying at least half of them forward.
