By Chuck Mikolajczak
NEW YORK, Nov 6 (Reuters) – The US dollar index surged on Friday and was poised for its biggest daily percentage gain in nearly five months after a stronger-than-expected US payrolls report solidified expectations for a rate hike from the Federal Reserve next month.
The Labor Department said US nonfarm payrolls jumped by 165,000 jobs last month, topping the 65,000 estimate of economists polled by Reuters, after an upwardly revised 60,000 gain in September. The unemployment rate dipped to 4.1%.
The report gives the Federal Reserve latitude to continue to hike interest rates, and market expectations for an increase of at least 25 basis points at the central bank’s December meeting moved back up towards 80% in the wake of the report, according to the CME FedWatch Tool.
The dollar index, which measures the greenback against a basket of currencies, surged 0.77% to 102.26, with the euro tumbling 0.67% at $1.11437. The dollar was on track for its biggest daily percentage gain since June 17, while the euro was on pace for its biggest daily drop since October 1.
For the week, the dollar was up 0.3% while the euro shed 0.1% and was on track for a third straight weekly decline.
Expectations the Fed would hike next month had fallen to about 67% on Thursday as US equities plummeted, with the S&P 500 wiping out about $3 trillion in market value while the Nasdaq suffered its biggest one-day percentage drop in 19 months on fears that tougher government regulations on the AI buildout after the US midterm elections would stunt economic growth.
Democrats are planning to unleash a flood of new legislation targeting artificial intelligence systems and data-center development when they take control of the US Congress in January, lawmakers, congressional aides and advocates said.
MARKET DYNAMICS SHIFT AFTER DATA
The dollar was higher before the jobs data, buoyed by safe-haven demand, as the selloff in AI stocks spread worldwide, although US stocks had stabilized by the opening bell and the Nasdaq rallied more than 1% heading into the latter stages of the trading day.
Treasury yields moved higher in the wake of the jobs report, with the 10-year yield up 1.6 bps to 4.85% and the 2-year yield rising 4.1 bps to 4.52%.
“It’s the same old conversation of, at any given moment, is the dollar trading more on a safe-haven basis, or is it trading more on an interest rate differential basis? And those things, sometimes it’s one or the other, and they can be completely at odds with one another, and it’s not really rational,” said Eugene Epstein, head of trading and structured products at Moneycorp in Stamford, Connecticut.
