Earnings Surprise Sees Dollar Tick Higher

December’s report on the US labour market in December was broadly in line with expectations, with the shortfall in job creation being offset by a similar upward revision to the November number. Unemployment rose to 4.7% as expected while participation ticked higher to 62.7% from a downwardly revised 62.6%, but remained worryingly and frustratingly close to its post-financial crisis low.

Markets Have Bigger Troubles Than NFP

Low participation may be a lingering thorn in the side for the Fed but one big positive to come from the report was an increase in earnings. Average hourly earnings were up 2.9% in December from 2.5% the month before which will offer encouragement to the central bank, after having been frustrated throughout the recovery at the lack of progress here despite unemployment having fallen considerably. Should earnings continue on the current trajectory then inflationary pressures should continue to build and enable the Fed to raise interest rates three times this year as planned, even in the absence of a large fiscal stimulus package from a Trump government.

NFP

With wages rising and unemployment low though, any stimulus may force the Fed to raise interest rates even more than the three times it has indicated which would lift the dollar further and see Treasury yields continue the move higher. The jobs data has seen Gold come off its highs having capitalised on dollar weakness in recent days.

Gold Daily

For a look at all of today’s economic events, check out our economic calendar.

Economic Calendar

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.