U.S. Dollar Rebounds As Non Farm Payrolls Report Exceeds Analyst Expectations

Key Insights

• U.S. economy added 336,000 jobs in September. 
• Treasury yields moved higher as traders bet on a more hawkish Fed. 
• U.S. Dollar Index climbed back above 106.70. 

On October 6, U.S. released Non Farm Payrolls report, which indicated that the economy added 336,000 jobs in September, compared to analyst consensus of 170,000. Unemployment Rate remained unchanged at 3.8%.

FedWatch Tool indicates that there is 71.3% probability that Fed will leave the federal funds rate unchanged at the next meeting in November. Traders believe that there is 38.8% probability that Fed will raise the federal funds rate by 25 bps in December. Interestingly, some traders believe in a 50 bps hike, although this scenario has a low probability of just 6.8%.

The stronger-than-expected Non Farm Payrolls report provided significant support to Treasury yields as bond traders prepared for a more hawkish Fed. The yield of 10-year Treasuries moved towards the 4.85% level, while the yield of 30-year Treasuries settled above the psychologically important 5.00% level.

Not surprisingly, U.S. Dollar Index rebounded above 106.70 as traders focused on the healthy job market and rising Treasury yields.

Gold remained stuck near the $1815 level. While rising Treasury yields and stronger dollar are bearish for gold, it looks that demand for gold is slowly rising due to its status of a safe-haven asset.

SP500 settled below the 4250 level in premarket trading. Fed policy outlook remains the key catalyst for stocks. Fed is trying to put some pressure on the job market to fight inflation, but the Non Farm Payrolls report indicates that the job market remains strong. Thus, Fed may be forced to raise the federal funds rate one more time this year, which is bearish for stocks.

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