Jobs Report Results in a Resurgence of US Dollar Strength

Today’s jobs report released by the Labor Department indicated that U.S. employers added 209,000 jobs in July, well above analysts’ estimates. Add to that a 16 year low in the unemployment rate (4.3%), and you have the necessary components to bid up the U.S. dollar, which has been under dramatic pressure throughout this year, resulting in a 15-month low. The real question is whether today’s data and dollar strength indicate a key reversal for the dollar or simply a dead cat bounce.

The U.S. Dollar Index gained almost 7/10 of a percent today, settling at 93.35. This, of course, resulted in strong downside pressure on dollar based commodities, such as gold and silver.

As of 10 o’clock EDT, spot gold is currently trading down $9.20 at $1258.70. According to the Kitco Gold Index (KGX), this move was almost entirely dollar based, with very little selling or buying accounting for the price change. Of that -$9.20, a strong U.S. dollar contributed $8.60, with selling representing only $0.60 to the current price of gold. This week’s move brought a conclusion to the former gold rally, which resulted in higher pricing for the last three consecutive weeks.

I Think She Will Raise Rates, I Think She Will Not

On Wednesday, I wrote about the shifting market sentiment regarding the current Fed monetary policy, which continues to oscillate considerably. In this report, I wrote: Like pulling the petals off a daisy, market participants and analysts have been oscillating back-and-forth, almost day by day, as to whether Janet Yellen, at the helm of the Federal Reserve, will initiate a last interest rate hike in 2017.

On Wednesday, according to the CME’s FedWatch tool, the odds of another quarter-point U.S. rate increase this year was at 47%. Today’s Jobs report will certainly move that needle much higher.

According to Jeffry Bartash, in an article he penned for MarketWatch, “A robust labor market also keeps the Federal Reserve on track to raise U.S. interest rates again before year end. The central bank is already putting the final touches on a plan to wind down a multi-trillion-dollar bond-buying spree put in place almost a decade ago to stoke the economy.”

Market participants and analysts have the weekend to digest today’s report and gauge what effect this data will have on the monetary policy of the Federal Reserve. It will be interesting to see how the odds change vis-à-vis the CME’s FedWatch tool.

Wishing you as always, good trading,