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US Dollar Churns as ’Goldilocks’ September NFPs Keep Dec Hike in Focus

US Dollar Churns as ’Goldilocks’ September NFPs Keep Dec Hike in Focus

Talking Points:

- Job growth came in below expectations, but still strong enough to not disrupt the trend.

- The unemployment rate ticked higher as labor force participation increased.

- See the DailyFX Economic Calendar for Friday, October 7, 2016.

This was the quintessential, ‘not too hot, not too cold’ US jobs report, if there ever was one. Ahead of the release of the September US Nonfarm Payrolls, we were suggesting that this would be one of the less important jobs reports of the year, given two key facts: first, that the US elections were around the corner, and the Fed would be unlikely to raise rates in such close proximity to November 8; and second, that this NFP report was one of three before the December FOMC meeting.

Needless to say, with such a middling number - +156K – there’s not a lot to be excited about. Yet this is the exact type of jobs report that Fed officials may have expected, given their previous commentary about expecting headline jobs growth to decelerate as the economy nears full employment. As we discussed in the Top FX Headlines piece yesterday and the NFP preview today, any jobs growth north of +100K should be enough to keep the Fed focused on normalizing rates in the near-term.

To this end, the FOMC probably won’t be displeased with the one-tenth rise in the unemployment rate (U3); it was driven by an expansion of the labor force participation rate. Concurrently, with wage growth meeting expectations at +2.6% y/y, markets feel this type of report – while not exceedingly positive – is good enough to keep a December rate hike on track. Fed funds futures were pricing in a 63% chance of a December hike pre-NFP release; they were pricing 65% chance at the time this report was written.

Here are the data impacting the US Dollar this morning:

- USD Unemployment Rate (SEP): 5.0% versus 4.9% expected unch.

- USD Change in Non-farm Payrolls (SEP): +156K versus +172K expected, from +167K (revised higher from +151K).

- USD Labor Force Participation Rate (SEP): 62.9% from 62.8%.

- USD Average Hourly Earnings (SEP): +2.6% as expected, from +2.4% (y/y).

See the DailyFX economic calendar for Friday, October 7, 2016

Chart 1: EUR/USD 1-minute Chart (October 7, 2016 Intraday)

Following the data, the US Dollar traded mostly sideways, with EUR/USD trading only slightly higher post-release. At the time this report was written, EUR/USD was seen at $1.1156 from $1.1137 ahead of the data.

--- Written by Christopher Vecchio, Currency Strategist

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.