The Dollar firmed across the board following the release of jobless claims data which showed claims falling 37K to 404K.
As we can see from our chart of jobless claims above jobless claims have been a part of the recent success story in US data. If you zoom in on the last two-three years in we can see that throughout the first half of 2010 jobless claims bounced around the 500K and 450K levels.
It wasn't until late October that claims fell below 450K, and most recently they came down to a 2 and 1/2 year low at 388K on Dec 30th. The feel good story around the labor market was taken down a notch when the December non-farm payroll report came in weaker than expected, with 103K gained compared to 159K forecast. Last week, jobless claims were shown to have jumped by 35K to 445K, a disappointing figure that combined with NFP report cast some doubt on the US labor market.
Today's report goes some way to dispel some of that anxiety, as we saw claims go back to the 400K area. In today's NY session, the report helped to stiffen the US Dollar. That's the short term implication, but the labor market is the key factor in whether the current uptick in US data will be sustainable. The Fed believes that the labor market is not ready and therefore is steadfast behind its second round of Quantitative Easing.
If employment data like jobless claims continued to improve, and we see tangible evidence of this in the upcoming non-farm payroll report better data then the Fed's thinking can shift. This would be double true if we had some higher inflation readings as well.
Positive data in the US labor market therefore has the chance to alter the FOMC's current policy and that could have strong implications for the US Dollar. Monitoring the labor market is an ongoing thing, but the weak report from last week may be now blamed for on seasonal adjustments than weakness.