NFP Provides “No” Support For the Dollar

This morning’s two-week delayed US employment report was weaker than the market had been expecting. The release marks the first major US economic data point after the partial US government shutdown that commenced on October 1st.

The data collected for September’s estimates had been completed in advance of the shutdown, however, the shutdown will have affected the October report that is due for release on November 8th.

The US economy added only +148k new jobs in September, below market consensus of +180k, which suggests that hiring Stateside stumbled again ahead of the well-documented budget and debt ceiling talks in the US.

The headline print was below the 12-month average print (+185k per month).

The backward revisions provided little support for the main headline. The previous month August was adjusted higher to +193k from an earlier estimate of +169k, while July was revised down to +89k from +104k. The two-month revisions added only an extra +9k to payrolls.

The unemployment rate ticked down to +7.2% from +7.3% the previous month. The participation rate remained unchanged at 63.2%.

Bernanke and his fellow policy cohorts are closely watching the report for any signs of weakness. In theory, today’s numbers may not offer the most current picture of the US economy. The consequences of the Washington dysfunction, witnessed by global markets over the past couple of weeks, could potentially take months to filter through economic reports.

To taper or not to taper will surely be driving the dollar direction in the medium term. This morning’s job report will only add weight to the “no” taper argument – which obviously is not supportive for the world’s primary reserve currency of choice. The $85b per month bond buying program is aimed at keeping interest rates lower and to encourage spending and hiring. Other recent surveys continue to show that US Company’s continue to restrain their hiring partly because of concerns about how the budget fight will influence the economy.

The EUR’s immediate reaction would suggest that the current dollar weakness has legs and has someway to go – the 17-member single currency hit fresh 2013 highs 1.3723 following the release. Currently, it seems that with such shallow pullbacks in the EUR that this market only wants to go one direction at the moment and that is not USD positive. If risk were to be applied then EM currencies with some yield should remain in demand -basically more of the same.

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