Karen Brettell
NEW YORK (Reuters) – The dollar rose to a seven-week high on Friday and was on track to post its best week since September 2022 after a surprisingly powerful September jobs report prompted investors to reduce bets that the Federal Reserve would overwork another 50 – interest rate cuts by a basis point.
The dollar also posted its best weekly percentage performance against the Japanese yen since 2009 as investors adjusted to less dovish Fed and more dovish Bank of Japan decisions, triggering a rapid sell-off in the currency pair.
U.S. nonfarm payrolls rose by 254,000 last month, exceeding the 140,000 novel jobs expected by economists polled by Reuters.
The unemployment rate also unexpectedly dropped to 4.1% from 4.2% in August.
This is, by all accounts, a “blockbuster payroll report.” “I think the no-show scenario for the US economy has suddenly become much more likely,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
“We can now expect the Federal Reserve to be much more cautious in easing policy,” Schamotta said.
Improving economic data and more hawkish comments from Fed Chairman Jerome Powell on Monday, in which he dismissed expectations of further significant rate cuts, prompted traders to reduce bets on a 50 basis point cut at the next Fed meeting on November 6-7 .
After Friday’s data, these chances were completely destroyed. Traders are now pricing in no chance of a 50-basis-point rate cut, down from about 31% earlier on Friday and 53% a week ago, CME Group’s (NASDAQ:) FedWatch Tool shows. A 25-basis-point cut is considered almost certain, and investors also see little chance that the Fed will leave interest rates unchanged.
Bank of America expects the Fed to cut interest rates by 25 basis points at each meeting through March 2025, followed by 25 basis point cuts each quarter through the end of 2025, BofA U.S. economist Aditya Bhave said in a report on Friday.
“The data flow since the Fed decided to cut interest rates by 50 basis points in September has been exceptionally positive,” he said, calling Friday’s report an “A plus.”
Chicago Fed President Austan Goolsbee called the data “terrific” and said more similar labor market data would strengthen his confidence that the economy is at full employment with low inflation.
It hit 102.69, the highest level since August 16, and was on track for its largest weekly percentage gain since September 2022.
The euro fell to $1.09515, its lowest level since August 15.
The dollar rose to 149.02 yen, the highest since August 16.
New Japanese Prime Minister Shigeru Ishiba stunned markets this week when he said the economy was not ready for further interest rate increases, an obvious change from his previous support for the Bank of Japan’s waning decades of extreme monetary stimulus.
The dollar was also supported this week by demand for sheltered havens amid concerns about deepening conflict in the Middle East.
Supreme Leader Ayatollah Ali Khamenei said Friday that Iran and its regional allies will not back down. Iran upped the ante by firing missiles into Israel on Tuesday, partly in retaliation for Israel’s killing of Hezbollah Secretary General Sayyed Hassan Nasrallah.
Sterling fell as low as $1.3070, its lowest level since September 12.
The Bank of England’s chief economist, Huw Pill, said on Friday that the British central bank should move only gradually by cutting interest rates, a day after the pound fell 1% after Governor Andrew Bailey said the BoE could move more aggressively to lower interest rates.
In cryptocurrencies, bitcoin rose 1.95% to $61,958.
