In recent times, markets around the world have become increasingly concerned about the inflationary impact of falling US unemployment, with some believing it could lead to a demand for higher wages. In addition, there is the threat to emerging markets – many borrowed heavily in dollars when interest rates were at rock-bottom levels following the global financial crisis, but with the Fed hiking rates eight times in the past three years and prolonged dollar strength, the cost of borrowing has significantly increased.
With that in mind, Friday was an eagerly anticipated day, as figures for US jobs and wages were on the schedule. It is fair to say the releases were a bit of a mixed bag. Non-farm payrolls came in at 134,000 in September, which was weaker than the 185,000 expected. However, the figure for August was revised up to 270,000 from 201,000 to make the preceding month even more impressive than originally thought.
Meanwhile, the unemployment rate dropped to 3.7% from 3.9% in the previous two months, which was the best figure since December 1969. Fears that annual wage growth would push through the 3% were not realised and the figure actually slipped to 2.8% from 2.9% in the previous period. Ultimately, it looks as if inflationary pressures in the US have lessened for now. Wall Street will receive the news warmly, as will the aforementioned emerging markets, but non-farm payrolls are notoriously volatile; as mentioned above, last month’s reading was revised upwards by 69,000 so we do not have the full picture yet.
Then there is the impact Hurricane Florence had on the figures. In mid-September, she hit the Carolinas which has almost certainly negatively impacted the reading. The next non-farm payrolls will be especially interesting. They might well be revised upwards and there could be a significant rebounding once the dust of Florence has settled. Still, the dollar weakened following the release, which helped sterling push through $1.31 to finish the week on a high. The pound didn’t fare too badly against the euro too and extended its gains following Thursday’s two-month high.
As we start a new quarter, we’re all looking forward long-term. If you’re making regular payments into another currency, do make sure that you’ve spoken to your Personal Trader on 020 7898 0541 about regular plans or automated payments.