The US employment data will have a mixed impact on the dollar. There will be a mood of caution surrounding the economy and fresh doubts whether the Fed will be in a position to increase interest rates. There are also likely to be doubts over the global economy which should stem capital flows into higher-risk assets and this will tend to provide some dollar protection. Underlying US currency sentiment is likely to remain generally weak which will certainly tend to stifle dollar rallies relatively quickly. The dollar will be hampered by a lack of further G7 support, but supportive comments are still likely. Overall, the Euro is liable to be blocked on rallies to the 1.4680 region against the dollar with further short-term Euro buying support below the 1.45 region.
The US employment data inevitably tended to dominate markets during Friday with movement limited ahead of the data release. The headline figure was weaker than expected with an employment decline of 263,000 for September after a revised 201,000 decline the previous month. The unemployment rate was in line with expectations with an increase to a 23-year high of 9.8%, although the background data was weaker than expected as there was a substantial number of people leaving the workforce which actually dampened the rate of unemployment increase.
The secondary data will cause underlying concern with aggregate weekly hours resuming a significant decline with a 0.5% monthly drop. There had been some stabilisation in this series during the summer and the renewed decline will increase fears that any economic recovery will not be sustainable.
The dollar gained immediately after the releases as risk appetite deteriorated, but the Euro found strong support below the 1.45 level and then pushed to a high above 1.4620 on a covering of short Euro positions while there were also reports of institutional Euro buying at lower levels. The dollar was also unsettled by reduced expectations that the Federal Reserve would be in a position to increase interest rates within the next few months and underlying confidence will remain weak.