After the market had spent the past few weeks seriously questioning the viability of just one Fed rate hike being possible this year (as opposed to the four that we had been originally led to believe), where does the strong August Nonfarm payrolls report leave markets? The outlook moving into the report was cautious. The rather tepid sequence of a procrastinating July FOMC, GDP disappointment and underwhelming ISM had pulled a corrective period for the dollar. However, we have now had two months of strong Non-farm payrolls reports in a row and the dollar has reacted strongly. The legacy of this Non-farm Payrolls strength should help to drive renewed dollar strength this week.
Headline number of 255,000 smashed estimates (with a small upward revision to June’s number, whilst average hourly earnings of +0.3% means traction is being seen in wage growth to 2.7% for the year. It will now be interesting to see if there will be another near term dollar bull run, and economic data will be important now in the coming days/weeks, starting with retail sales on Friday. So far, market reaction has also been risk positive, with good news being seen as good for markets. This tends to the reaction when expectations of an imminent rate hike are low. However this could change if the September payrolls are again strong. I am still of the expectation that the Fed will make their next move in December (September is all rather close to the Presidential election, which is a great excuse for a cautious FOMC). For now, expect strong dollar moves to be seen.