US Dollar Falls Despite Bullish Non Farm Payrolls and Improved Fed Rate Forecasts - What Gives?

Highly-anticipated Non Farm Payrolls data failed to provide the sharp dollar volatility many had hoped for, and some claim that the official payrolls result proved underwhelming following an earlier-week ADP Employment release. Indeed, Wednesday’s ADP figures theoretically predicted a November Non Farm Payrolls gain in excess of 200,000 jobs, but the Bureau of Labor Statistics figures clearly failed to live up to such expectations.

Not all market participants were disappointed by the release, however; a rally in US bond yields showed reduced fears for the future of domestic economic growth. Such an improvement in sentiment likewise allowed for a boost in US Federal Reserve interest rate expectations. The December Fed Funds contract now shows an approximate 75 percent chance that the central bank will reduce its key short-term rate by 25 basis points—and not 50 basis points as some had feared. A more bullish outlook for US dollar interest rate differentials should have been enough to boost the currency, but forex traders have thus far shown little willingness to bid the greenback higher through end-of-week price action. 

Written by David Rodríguez, Currency Analyst for DailyFX.com

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