Fed charge cuts are again on the desk, US greenback falls

The US dollar is broadly lower in the aftermath of the non-farm payrolls report and it’s not just because the headline was soft at +12K versus +113K expected. That could be explained away by hurricane impacts and strikes.

The kicker is that the prior two months were revised by a net 112K jobs, which brings the three-month moving average of jobs down to 104K, the lowest since the pandemic.

The unemployment rate held at 4.1% but only barely as it was rounded down from 4.145% and it was helped by many people dropping out of the labor force and the participation rate falling 0.1 pp. Again, those are likely hurricane impacts that will be reversed but the Fed has to play the hand it’s dealt and will see this as a reason to cut rates.

With that, the market is pricing in a 99% chance of a cut next week, up from 93% before the data. More importantly, the December number is now at 84%.

With that, the US dollar has dropped sharply, about 80 pips since the report on USD/JPY to 1511.