• The DXY sank towards 105.05, its lowest level since mid-September.
  • US government bond yields are retreating, also standing at lows since September.
  • Job creation decelerated in October in the US as well as Hourly Earnings, while the Unemployment Rate increased.

The US Dollar (USD) witnessed a significant drop on Friday, with the US Dollar Index (DXY) descending below 105.05. The Greenback price dynamics were set by weak labor market data from the US and falling US bond yields as weaker-than-expected Nonfarm Payrolls (NFP) give investors confidence that the Federal Reserve (Fed) won’t deliver any more hikes. 

Despite the Federal Reserve’s (Fed) recent restrictive measures, the United States economy continued to showcase unparalleled resilience, outshining its global counterparts, which favoured the USD in the previous weeks. However, the labour market is starting to show weakness, which makes investors bet on the Fed approaching the end of its tightening cycle, which seems to be weakening the Greenback as the tightening effects become visible.

Daily Digest Market Movers: US Dollar plunges amid decelerating job creation and rising unemployment

  • The US Dollar Index declined below 105.05, down 1% on the day, mainly driven by weak labor market data reported earlier in the session.
  • The US Bureau of Labor Statistics reported that the Nonfarm Payrolls from October came in lower than expected. The US added 150,000 jobs in October vs the expected 180,000 and decelerated from its revised previous figure of 297,000.
  • The Unemployment Rate came in at 3.9% in October, above the expected 3.8% and accelerated compared to its previous reading of 3.8%.
  • The Average Hourly Earnings increased by 0.2% MoM but rose  4.1% YoY, higher than the expected 4% and its previous reading of 4.3%.
  • In addition, economic activity data also came in weak. The Institute for Supply Management (ISM) Services PMI fell short of expectations. The figure came in at 51.8 in October, lower than the consensus of 53 and its last figure of 53.6.
  • Likewise, the S&P Global Services PMI from October came in at 50.6, lower than the expected 50.9 and decelerated from its previous figure of 50.9.
  • In the meantime, the US Treasury yields continued to decline The 2-year rate fell to 4.80%, its lowest level since early September, while the longer-term 5 and 10-year rates retreated towards 4.50% and 4.54%, also hitting multi-week lows.
  • Due to the weak data, dovish bets on the Fed increased. According to the CME FedWatch Tool, the odds of a 25 basis points hike in December fell to 9%, which added selling pressure to the Greenback. 

Technical Analysis: US Dollar Index extends losses as bears step in after conquering the 20-day SMA

The DXY shows a neutral to bearish technical stance on the daily chart. The Relative Strength Index (RSI) exhibits a negative slope below the 50 threshold, while the Moving Average Convergence (MACD) histogram prints increasing red bars. Additionally, the pair is below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, implying that the bulls remain in control on a broader scale but that the sellers are in command of the short-term.

Support levels: 105.00, 104.70, 104.50.
Resistance levels: 105.50, 105.80, 106.00.

Nonfarm Payrolls FAQs

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.