The report on the us labor market for the month of September was significantly different from the expectations of the market and leads to an increase in the demand for the dollar. The number of jobs has decreased by 33, 000 , marking the first decline in seven years. The data for the two previous months were revised down by 3, 000, and without taking into account other factors, such as the weak numbers were expected to weigh on the dollar, because they turned out to be much worse than the forecast.
However, the negative was more than offset by other indicators. First of all, the Ministry of Labour has issued a warning — he says that the decrease is mainly due to the consequences of hurricanes «Harvey» and «Irma», which means that it is a temporary factor. Secondly, the qualitative aspect of the image has improved, unemployment has decreased from 4.4% to 4.2% and updated the 16-month period, while the share of the population participating in the workforce has increased from 62.9% to 63.1%.
But the most important — it is the growth of the average hourly wage. Analysts expected a September increase of 0.3%, but the figures came in showing a 0.5% year-on-year increase of 2.5% to 2.9%, which makes him the best result since 2009.
As we know, the Fed sees a direct correlation between the growth of employment as well as wage growth and inflation (Philip’s curve). The Federal Reserve board consistently reports this addiction in his public statements. Full employment leads to the employers ‘ competition for skilled workers, which is reflected in the growth of wages, which in turn causes the growth of the demand of the consumers and, at the final step, the growth of inflation.
Inflation is one of the key factors in the evolution of the monetary policy. Strong wage growth in September suggests that the 13 October, the report on consumer prices in September will show a result that is better than the current expectations. For the moment, the weather is a gain of 2.0%, from 1.9% in August, but now, the markets will not be surprised if the figures show an increase of 2.2%, which is a powerful factor bullish for the dollar and will allow the bulls to launch a new assault on Monday.
The futures market confidently forecast a rate increase in December and a high probability of the next step, already in March 2018, which is also a strong argument in favor of the dollar.
Still news should be noted, which has not yet been fully realized by the market. On Friday, the US Treasury department has published a report, which contains a set of recommendations for the amendment of the regulations of the financial markets. First of all, the document is important in that it directly contains a proposal to remove a part of the requirements of the Dodd-Frank act, which will cause a positive reaction of the markets, and encourage capital inflows to the united States.
In particular, it is proposed to remove the obligation to indicate the size of the difference between the remuneration of the company’s management and ordinary employees, so as to delete the provision on the «ores mined in the conflict zone» (which will allow American companies to actively develop external sources of raw materials, in fact, to be in solidarity with one of the belligerents). It is also proposed to reduce the margin requirements for derivatives trading. This step is able to attract, in addition to investment, hot speculative capital.
Thus, the Advantage of continuous administration of to create attractive conditions for doing business in the united States and the tightening of financial conditions due to the increase in rates was more than offset by the weakening of the administrative rules. The joint actions of the Federal Reserve and the administration should create a source of economic growth, that is, exactly what must, according to the plan, contribute to the influx of capital into the U.s. economy.
The dollar has received a number of bullish signals at the time, and the market is going to react with the increased demand. For the rest of the world, the news is rather negative, so that the currencies of the developing countries and the commodity bloc become the most affected in the next week, but safe-haven currencies, mainly the yen, can compete with the dollar for investors ‘ attention.