US FX WRAP: Dollar bid on AI rebound and stellar US jobs report

The Dollar Index saw strong gains on Friday, adding to Thursday’s haven-driven buying, as a tech rebound helped quell some growth fears and the US jobs report was stellar. The headline jumped to 165k from an upwardly revised 60k, well above the 65k consensus. Unemployment unexpectedly fell to 4.1% from 4.2%, while the participation rate ticked up to 61.9% from 61.8%. The prelim. UoM survey for November also impressed and, encouragingly, both short- and longer-term inflation expectations fell. Speaking before NFP, the Fed’s influential Williams said it is an appropriate time to gather more information and that inflation is well anchored. Heading into the weekend, focus will be on any developments in the Middle East. Next week, inflation reports will be closely watched given their importance for the Fed.

G10 FX was lower across the board on the broad Dollar rally. The Antipodeans saw the largest losses, while the Yen and Swissy were the relative outperformers, albeit still under notable pressure. For the Yen, BoJ Governor Ueda spoke at length, noting that CPI is now around 3% and expected to rise further into early next year, and that underlying inflation will likely stay around 2%, while recognising some upside risks. He added that the BoJ looks at the actions of other central banks “very, very carefully”, as they affect asset prices, including exchange rates and interest rates.

Currency-specific newsflow was light overall, aside from CAD, but there was further central bank rhetoric out of Europe. ECB’s Lane said inflation needs to be back to target in a year or two, and that fiscal policy has been more expansionary than expected this year but is expected to be less so in coming years. Referencing December, he said now is the time to gather information. On the data front, German IP beat expectations, while EZ retail sales disappointed. In the UK, BoE’s Pill said the Bank was short of specific evidence of second-round effects, but that a decision to raise rates pre-emptively is in character, adding that there were different views and nuances around the decision.

The Loonie was hit by a dismal jobs report, which showed a third consecutive monthly decline in employment. The Canadian economy lost 4.7k jobs in October (exp. +13.6k), with the unemployment rate unexpectedly rising to 6.7% (exp. & prev. 6.5%).