The U.S. economy added 142,000 jobs in September, when more than 200,000 were forecasted. The August numbers were revised as expected but investors got a shock as the number was lower as the upward revisions did not materialize. The unemployment rate remained at 5.1 percent, but the pressure on the Federal Reserve to raise rates will have diminish after the disappointing October jobs report.
The USD is trading lower against all pairs. Economists were forecasting over 200,000 gains in September and upward revisions to the August numbers of 40,000. The market exhibits a bias to react to negative results than to reward the USD with positive outcomes above the forecast. The Federal Reserve is trying to make the right call by delaying the interest rate hike until it can witness the right conditions for the U.S. economy. The real problem is the Fed has already committed to a rate hike in 2015, which in itself was hawkish from the central bank, but has so far failed to give any real guidance on when it will happen. The uncertainty surrounding the timing of the hike has increased market volatility and contradictory statements from Fed members are not helping. A weak NFP might be enough to push the American benchmark rate hike until 2016, even though an above expectations one could not have guaranteed one before the end of the year.
The miss on the strongest pillar of the U.S. recovery might prove to be a mirage as September revisions tend to be higher than average, but for now the USD is on the back foot across the board. The chink in the employment armor could cause other central banks to act as the Federal Reserve is more likely to wait. That put further pressure on the Bank of Japan and the European Central Bank. The BoJ is expected to add to its record stimulus program next week.
The problem with the Fed giving so much weight to the employment component was that it cannot keep rising forever. There is a point where gains will be marginal and as seen today some setbacks. The Fed was right to base most of rate rise rhetoric on employment, but it might have missed a window to hike while still having the support of strong jobs data. Overall the Fed does not want to lose more credibility and it has chosen to err on the side of patience than to backtrack on a commitment if economic conditions deteriorate.