Dollar Holds Firm on Strong Jobs Report

The US dollar index slipped toward 102 on Monday but retained most of the previous session’s gains as stronger-than-expected jobs data bolstered bets for a Federal Reserve rate hike in December. Nonfarm payrolls rose by 165,000, more than double the 65,000 forecast, while the unemployment rate edged down to 4.1%, highlighting the resilience of the labor market. Markets are now pricing in an approximately 81% probability of a Fed rate increase in December, up from 71% before the employment report. In recent Fed commentary, San Francisco Fed President Mary Daly indicated that further rate hikes may still be necessary despite the recent tech stock selloff. Investors are now turning their attention to key US inflation data due this week for additional clues on the monetary policy outlook, with the CPI report scheduled for Tuesday and the PPI figures expected on Friday.

The US dollar index rose 0.6% to 102.2 on Friday, extending gains after October employment data significantly exceeded expectations. Nonfarm payrolls increased by 165,000, more than double the 65,000 forecast, while the unemployment rate edged down to 4.1%. Job gains were broad-based, led by professional and business services and healthcare, reinforcing evidence of a resilient labour market supported by consumer spending and business investment. The stronger figures strengthened expectations that the Federal Reserve will maintain a restrictive monetary stance, with investors anticipating another interest rate increase in December to contain inflation. Policymakers will receive one more employment report and a full set of inflation data before their next meeting. The dollar also benefited from increased safe-haven demand amid a global equity selloff driven by concerns over AI valuations and tighter regulation.

The dollar index rose to 102 on Friday, its highest level in a week, partially reversing losses from the previous two sessions as traders awaited the key US jobs report and assessed a global equity sell-off. Demand for safe-haven assets increased amid the equity rout and growing concerns over the AI trade and elevated capital expenditure, as investors weighed the prospect of a more restrictive regulatory environment under a Democratic-led Congress. Meanwhile, expectations that the jobs report would point to a stable labour market, while reinforcing the view that employment conditions were not a source of inflationary pressure, provided further support to the greenback. Markets are currently pricing in around a 71% probability of a 25bps Fed rate hike in December. The dollar posted its strongest gains against the euro, British pound and Japanese yen. Despite Friday's advance, however, the dollar remains down 0.3% for the week.