Insights 
VT 
The US Dollar stabilised on Friday morning in Europe after weakening against major currencies on Thursday. The focus is now on labour market data from Canada and the University of Michigan’s US Consumer Sentiment Index for November.
On Thursday, Challenger, Gray & Christmas reported that US employers cut over 150,000 jobs in October, marking the largest reduction for the month in more than two decades. This led to significant declines in Wall Street indexes and a 0.5% drop in the USD Index, which later settled at around 99.80 on Friday.
Bank Of England Keeps Policy Rate
The Bank of England kept its policy rate at 4% in November, in line with market expectations, with four committee members supporting a 25-basis-point rate cut. While the initial reaction was negative for the Pound Sterling, Governor Andrew Bailey’s cautious comments helped it recover. Additionally, GBP/USD trades above 1.3100 following a considerable gain on Thursday.
Meanwhile, EUR/USD rose by about 0.5% on Thursday and remains steady below 1.1550. Data from China showed export and import growth below expectations, contributing to the AUD/USD edging toward 0.6500. Gold remains above $4,000, and USD/JPY is trading positively near 153.50.
The large job cuts announced yesterday, the biggest for an October in over two decades, are a significant red flag for the US economy. This weakness in the labor market, particularly in tech and retail, directly challenges the Federal Reserve’s hawkish stance. We must now seriously consider the possibility of a policy pivot sooner than previously expected.
This concern is amplified by the latest official jobs report from last week, which showed a mere 85,000 jobs were added in October, falling far short of expectations. With the latest CPI inflation figures still hovering around a stubborn 3.5%, the Fed is caught in a difficult position. This scenario is reminiscent of the stagflationary fears we saw emerge in 2022, but now with tangible job losses.
Market Volatility And The Fed’s Dilemma
Given this uncertainty, we should anticipate higher volatility in interest rate and currency markets in the coming weeks. Derivative traders could consider buying put options on the US Dollar Index as a direct play on a Fed pivot. The upcoming University of Michigan Consumer Sentiment Index will be a critical data point, as a poor reading would reinforce this bearish dollar outlook.
The strength in gold, which is holding firm above $4,000 an ounce, is a direct reflection of these fears. This price level suggests that capital is already seeking safety from both persistent inflation and a potential economic downturn. A less aggressive Fed is historically bullish for gold, as it lowers the opportunity cost of holding the non-yielding asset.
In this environment, the British Pound’s recent strength appears fragile, especially with four BoE members already voting for a rate cut. While Governor Bailey’s comments provided temporary support, the UK economy is unlikely to be immune to a US slowdown. We see the rise in EUR/USD more as a function of broad dollar weakness than standalone Euro strength for now.
