Dollar Gains on Strong U.S. Labor Market

The dollar index (DXY00) on Friday rose by +0.45% and posted a 1-week high. The dollar rallied after Friday’s better-than-expected U.S. Sep payrolls report pushed T-note yields higher and kept aggressive Fed rate hikes in play.  In addition, a slump in stocks Friday also boosted the liquidity demand for the dollar. 

U.S Sep nonfarm payrolls rose +263,000, stronger than expectations of +255,000.  The U.S. Sep unemployment rate unexpectedly fell -0.2 to 3.5%, stronger than expectations of no change at 3.7%.

U.S. Sep average hourly earnings rose +0.3% m/m and +5.0% y/y, right on expectations.

U.S. Aug consumer credit rose +$32.24 billion, stronger than expectations of +$25.00 billion.

Comments Friday from New York Fed President Williams were hawkish for monetary policy and bullish for the dollar when he said, "we need to get interest rates up further," and the Fed needs to raise the fed funds rate to around 4.50% over time.

EUR/USD (^EURUSD) on Friday fell by -0.60% and slid to a 1-week low. Dollar strength Friday weighed on the euro along with weaker-than-expected German economic news on Aug retail sales and Aug industrial production.  In addition, signs of faster German import price inflation also weighed on EUR/USD after German Aug import prices rose more than expected at the quickest pace in more than 48 years.  Losses in the euro accelerated Friday on comments from ECB Governing Council member Nagel who said German inflation will probably be at or above 6% in 2023 and that he sees the German economy stagnating in 2023.

German Aug retail sales fell -1.3% m/m, weaker than expectations of -1.2% m/m and the biggest decline in 4 months.

German Aug industrial production fell -0.8% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 5 months.

The German Aug import price index rose +32.7% y/y, stronger than expectations of 30.1% y/y and the largest increase in 48 years.

ECB Governing Council member and Bundesbank President Nagel said the German economy probably contracted in Q3, and worsened in Q4.  He also said German inflation will probably be at or above 6% in 2023 and that he sees the German economy stagnating in 2023 as a whole.

USD/JPY (^USDJPY) on Friday rose by +0.19%.  The yen Friday fell to a 2-week low against the dollar on higher T-note yields.  However, strength in Japanese economic news Friday limited losses in the yen.  Also, comments Friday from Masato Kanda, Japan’s chief currency official, underpinned the yen when he said he’s “never felt a limitation” on ammunition for currency intervention.  The yen fell Friday to 145.44, modestly above the 145.90 level where Japan had intervened previously in the currency market to support the yen.

The Japan Aug leading index CI rose +2.0 to a 4-month high of 100.9, stronger than expectations of 100.3.

Japan Aug household spending rose +5.1% y/y, the biggest increase in 7 months but still weaker than expectations of +6.7% y/y.

December gold (GCZ22) Friday closed down -11.50 (-0.67%), and December silver (SIZ22) closed down -0.405 (-1.96%).  Gold and silver Friday posted moderate losses.  Friday’s stronger-than-expected U.S. Sep payroll report is hawkish for Fed policy and weighs metals prices.  Also, a rally in the dollar Friday to a 1-week high undercut metals prices.  Gold was also under pressure Friday from higher global bond yields.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low Thursday. 

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