Payrolls surprise resets rate expectations
The U.S. dollar index climbed 0.77% to 102.26 on Friday, its steepest one-day percentage advance since mid-June, after a payrolls report that came in far above what economists had projected. Nonfarm payrolls grew by 165,000 in the latest month, compared with a consensus forecast of 65,000, and the unemployment rate eased to 4.1%. The combination of solid hiring and a tighter labor picture quickly fed into expectations for Federal Reserve policy.[S1][S2][S4][S6][S8]
Traders responded by raising the probability they assign to a 25-basis-point rate increase at the Fed's December meeting to almost 80%, according to the report. That marks a reversal from earlier in the week, when the same expectation had fallen to 67% as U.S. equities sold off sharply, including a notable retreat in AI-linked shares on worries about new government regulation following the midterm elections.[S1][S4][S6]
Currencies and yields react across markets
The euro dropped 0.67% to $1.11437, putting it on course for its largest daily fall since October 1. Over the week the dollar gained 0.3% while the euro lost 0.1%, its third consecutive weekly decline. The dollar's advance also put it in line for a weekly gain, with the payrolls surprise driving the move.[S1][S5][S7]
Government bond yields moved higher after the data, with the 10-year Treasury yield reaching 4.85% and the 2-year yield 4.52%. The British pound slid 0.71% to $1.3355 following the Bank of England's first rate increase in more than three years, leaving sterling headed for its first weekly drop in four weeks. The Japanese yen weakened 0.47% to 158.430 per dollar and was set for its largest weekly decline since September, after news of government investment plans and Bank of Japan remarks about inflation targets.[S1]
