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US Dollar Pulls Back as Americans Lose Most Jobs Since 1971, Stocks Rally - Why?

Friday, 06 February 2009 21:21:30 GMT  |  Terri Belkas, Currency Strategist

The US dollar fell versus most of the majors on Friday as US non-farm payrolls fell in line with expectations by 598,000 in January, while the December reading was revised down another 53,000 to -577,000, indicating that the US economy lost a total of 3.57 million jobs in 2008. As a result, the unemployment rate has now climbed to a nearly 17-year high of 7.6 percent in January from 4.7 percent the month before the US recession began in December 2007. This clearly does not bode well for consumption and broad economic growth going forward, and also puts additional pressure on Congress to pass the stimulus plan currently being debated. In fact, much of the __ percent gain in the DJIA was attributed to hopes that the bill will successfully pass a vote by the Senate, as an $819 billion version of the bill has already passed in the House. In a similar vein, consumer credit fell for the third straight month in December by $6.604 billion as Americans seek to pay down debt and cut back on credit card spending.

All of this data is clearly negative from a fundamental perspective, but much of evidence of recession is already priced in to the US dollar. Judging by the similarly sharp drops we saw in the Japanese yen and the surge in equities, the decline in the greenback likely had more to do with improved risk appetite, and traders will need to keep these correlations in mind next week as Federal Reserve Chairman Ben Bernanke is scheduled to testify in front of the House Financial Services Committee on the central bank’s lending programs at 13:00 ET on Tuesday. Part of this will probably include explanations as to why the Federal Reserve announced on Friday that they would delay plans to start lending under a $200 billion program called the Term Asset-Backed Securities Lending Facility (TALF). TALF will allow the central bank to lend to holders of AAA rated debt backed by newly and recently originated loans, including education, car, credit-card loans, and loans guaranteed by the Small Business Administration. For more on news that could impact the forex markets this week, check out our look at the Top 5 Market Movers for the Week of 2/9/09.

Related Article: US Non-farm Payrolls Insight


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