US labour market report was not very strong, but not very weak either - Rabobank

Piotr Matys, EM FX Strategist at Rabobank, notes that the US economy created 156,000 jobs in September, which was lower than the consensus expectation of 172,000.

Key Quotes

“According to Rabobank’s Fed watcher Philip Marey, the labour market report was not very strong, but not very weak either. In his view non-farm payroll growth is sufficient for the FOMC to hike before the end of the year. The rise in unemployment to 5.0% from 4.9% was due to a large inflow to the labour market, not because employment growth in the household survey was weak. In fact, it underlines the point that Yellen made at her press conference after the last meeting that there is still some room to run, as formerly discouraged workers may be returning to the improving labour market. While average hourly earnings are up, they are still below the year-on-year peak in July, and even further below the 3-4% range that the FOMC prefers. Philip concluded that while there is no urgency for a November hike, the Fed is still on course for a move in December.

Such a scenario is also reflected in market expectations. The implied probability of a hike in November fell from around 24% to 17% after the markets digested the data. The odds that the Fed will end this year by tightening its monetary policy edged higher to 64.3% from 63.6%.

The prospect that the Fed will refrain from raising rates in November weighed on the US dollar. The DXY index – measuring performance of the US dollar against its G10 peers – fell from 97.20 to 96.40 low on Friday.”