Forex Today: US Dollar selloff pauses as focus remains on employment data

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Here is what you need to know on Thursday, December 4:

The US Dollar (USD) stabilizes early Thursday after suffering large losses against its rivals on Wednesday. The European economic calendar will feature October Retail Sales data. In the second half of the day, market participants will pay close attention to the weekly Initial Jobless Claims figures from the US.

On Wednesday, the Automatic Data Processing (ADP) reported that private sector employment in the US declined by 32,000 in November. This print followed the 47,000 increase recorded in October and came in worse than the market expectation for an increase of 5,000. Other data from the US showed that the Institute for Supply Management's (ISM) Services Purchasing Managers' Index (PMI) edged higher to 52.6 in November from 52.4 in October. The Employment Index of the PMI survey came in at 48.9, reflecting an ongoing contraction in service sector payrolls. The USD Index turned south following these data releases and touched its lowest level since late October near 98.80. Early Thursday, the USD Index recovers toward 99.00. Meanwhile, US stock index futures trade mixed after Wall Street's main indexes closed in positive territory on Wednesday.

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.49%	-0.72%	-0.51%	-0.07%	-0.93%	-0.60%	-0.28%
EUR	0.49%		-0.23%	-0.02%	0.42%	-0.43%	-0.11%	0.21%
GBP	0.72%	0.23%		0.48%	0.65%	-0.21%	0.12%	0.44%
JPY	0.51%	0.02%	-0.48%		0.43%	-0.44%	-0.10%	0.21%
CAD	0.07%	-0.42%	-0.65%	-0.43%		-0.90%	-0.53%	-0.21%
AUD	0.93%	0.43%	0.21%	0.44%	0.90%		0.33%	0.64%
NZD	0.60%	0.11%	-0.12%	0.10%	0.53%	-0.33%		0.32%
CHF	0.28%	-0.21%	-0.44%	-0.21%	0.21%	-0.64%	-0.32%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

During the Asian trading hours on Thursday, Bank of Japan (BoJ) Governor Kazuo Ueda said that there is uncertainty on how far they can eventually raise interest rates. In the meantime, Japanese Chief Cabinet Secretary Minoru Kihara said in a statement that he is concerned about movements in the foreign exchange markets. After losing about 0.4% on Wednesday, USD/JPY stays quiet in the European morning on Thursday and moves sideways below 155.50.

EUR/USD extended its uptrend midweek and touched its highest level since October 17 near 1.1680. The pair corrects lower in the European morning on Thursday and trades at around 1.1650.

After posting marginal losses on Monday and Tuesday, GBP/USD reversed its direction and rose more than 1% on Wednesday. The pair edges lower early Thursday but holds comfortably above 1.3300.

AUD/USD preserves its bullish momentum and trades slightly above 0.6600 on Thursday, gaining nearly 1% for the week.

Gold struggled to capitalize on the broad-based USD weakness on Wednesday and closed the day virtually unchanged. XAU/USD stays under modest bearish pressure in the European morning on Thursday and trades below $4,200.

Employment FAQs

How do employment levels affect currencies?

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

Why is wage growth important?

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

How much do central banks care about employment?

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.