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Paulson Graces Dollar
Friday, 08 December 2006 23:23:51 GMT  |  John Kicklighter, Currency Analyst
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As we said yesterday, Friday’s economic indicators would assess whether volatility had truly returned to the FX market. For those looking for trading opportunities in a more active market, the results didn’t disappoint. A consistently top ranked market-moving indicator, today’s NFPs built pressure behind the dollar; but the initial reaction was muddled. Payrolls through the month of November grew 132,000 heads, which was both better than expected and far above the previous month’s read.  This headline number, on the other hand, was tainted by a revision in October’s figure from 92,000 to 79,000.  What’s more, in comparison to the average payroll additions in the first half of the year, this was a modest improvement. The same mixed sentiment was present in the remaining statistics of the labor report. Average hourly earnings for the month rebounded to a 4.2 percent annual pace of expansion, while the jobless rate countered by stepping up to 4.5 percent.

Taking a deeper look into the employment numbers broken down by sector, the same offsetting sentiment was seen. So, from all angles, the labor numbers could have been regarded as the average print. However, these numbers were not taken in isolation; and it was the contrast drawn against preconceived dollar pessimism that helped to sow the seeds of a rally. With fears over the economy heading for a hard landing prevailing over the dollar, today’s employment and wage numbers helped alleviate the pressure while diverting expectations for a Fed rate cut by the first quarter of 2007. With this underlying optimism lying in wait, all that was needed was a trigger. Enter Treasury Secretary Henry Paulson who sparked the rally when he offered his opinion that today’s employment numbers were ‘good news’ and provided evidence economic growth was heading toward sustainable levels. On these comments the dollar entered a steep rally against most of its major pairs that easily measured over 100 points.

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