The US jobs report for way back in September was certainly better than expected with the headline NFP stronger than the consensus. Still, there were plenty of weakness in certain sectors of the economy within the report and again private education and health and government jobs made up a large portion of total NFP – 81K of the total. But looking at just the NFP it will certainly add credence to those at the Fed arguing for caution – 'many' FOMC members according to the minutes from the October meeting want to pause at the December meeting, MUFG's FX analyst Derek Halpenny reports.

FOMC expected to hold rates steady on December 10

"But the dollar failed to advance and front-end yields dropped a touch mainly due to the tick higher in the unemployment rate – from 4.32% to 4.44% and so not far from hitting 4.5%. We are somewhat surprised by the attention to the tick higher in the unemployment rate. Of course this is always an important element of the jobs data but the tick higher was not based on particularly bad news. The household survey data revealed a 470k increase in the labour force in September, outdoing the 251k new jobs created which resulted in the higher unemployment rate. It was the second consecutive month that the labour force expanded by more than job creation. "

"The inability of the dollar to advance further could also be explained by the claims data. While the initial claims data did not indicate anything alarming, the continued claims total did increase to a new cyclical high, underlining the continued gradual weakening of labour market conditions. Additionally, the AI/Tech concerns have not gone away following another solid earnings report from Nvidia. The focus ahead of Nvidia’s results reflected overall AI valuation concerns and positive Nvidia earnings have not shifted those concerns. If this pull-back in AI/Tech extends it could well reinforce a worsening of sentiment into year-end that would weigh on US dollar sentiment."

"All that said, it is unlikely to alter the likelihood of the FOMC holding off cutting rates on 10th December. There are no more NFP reports before then and the jobs report yesterday was just not weak enough to see the Fed cutting. 10bps of easing remains priced in the OIS market for the December meeting and the removal of that pricing should support yields and the dollar. Only a financial market disruption, like a bigger AI-related market sell-off, would make a rate cut more plausible again."