The U.S. dollar surged to a seven-week high on Friday, marking its largest weekly gain since September 2022. This followed a surprisingly strong jobs report, with nonfarm payrolls increasing by 254,000, far exceeding expectations of 140,000. The unemployment rate dropped to 4.1%, boosting confidence in the U.S. economy’s resilience. As a result, traders cut expectations for a 50-basis-point rate cut at the Federal Reserve’s November meeting, focusing instead on a smaller 25-basis-point reduction.
Resilient U.S. Economy Surprises Markets
Economists and market strategists noted that the September payrolls report highlights the ongoing strength of the U.S. labor market. Karl Schamotta, chief market strategist at Corpay, described it as a “blockbuster payrolls report by any measure,” suggesting that a “no-landing” scenario for the U.S. economy is becoming more plausible. As economic data continues to improve, the likelihood of larger rate cuts has diminished, with Fed Chair Jerome Powell earlier this week reiterating a cautious approach to monetary easing.
Dollar’s Rally Against Global Currencies
The dollar also saw significant gains against the Japanese yen, marking its best weekly performance since 2009. The greenback reached 149.02 yen, driven by contrasting stances between the Federal Reserve’s cautious rate-cutting and the Bank of Japan’s continued dovish policy. Japanese Premier Shigeru Ishiba’s remarks this week, indicating the economy is not ready for rate hikes, further pushed the yen lower.
Against the euro, the dollar reached $1.095, its highest since mid-August, while sterling fell to $1.307, reflecting weaker expectations for aggressive rate cuts from the Bank of England following statements from key officials.
Safe-Haven Demand Bolsters Dollar Amid Geopolitical Tensions
Adding to the dollar’s strength was increased demand for safe-haven assets amid ongoing Middle East tensions. Iran’s missile attacks on Israel and rising threats from Hezbollah have created geopolitical instability, pushing investors toward the dollar.
Conclusion: Dollar’s Strength Likely to Continue
With strong U.S. economic data and geopolitical uncertainty, the dollar’s momentum is likely to persist in the short term. The combination of the resilient labor market and traders reducing expectations for a 50-basis-point cut at the Fed’s next meeting has bolstered the greenback’s performance across global markets.
