The US dollar advanced Friday, sending other major currencies lower. At the time of writing, the GBP/USD pair was down more than half a percent, changing hands at around 1.3220, the lowest level since December 2020.
US labor market sends mixed signals
Today, data showed that the US economy created only 210,000 new jobs in November, the lowest number since December . That was against expectations of 550,000 and down 336,000 from October’s 546,000.
On the other hand, the unemployment rate improved to 4.2%, down from 4.6% in October . At the same time, average hourly earnings stayed at 4.8% year-on-year (against expectations of 5.0%). The USD initially declined after the data, but losses were temporary. The dip was quickly bought, and it continued to strengthen.
After the labor market data, St Louis Fed President and FOMC voting member in 2022 James Bullard said on Friday that the US economy has been very good at adapting to the pandemic and that he thinks that will continue. Moreover, the danger is that we will get too much inflation, he added, and that is not the intent of the Fed’s new framework.
Shortly after, the Services ISM surged to 69.1 for November, the highest ever, up from 66.7 previously and against expectations of a decline to 65.0. The inflation subindex – prices paid – stayed near October’ 82.9, suggesting that inflation is not easing.
Sharper increases in manufacturing and service sector input prices led to the fastest rise in cost inflation on record. Alongside greater fuel and material costs, firms noted a steeper uptick in wage bills.
Rate hike expectations rose after today’s data, implying the Fed should taper faster and raise rates by June.
As for the UK news, Bank of England (BOE) policymaker Michael Saunders said on Friday that a critical consideration for him at the December policy meeting would be the possible economic effects of the new Omicron variant.
The Bank of England is expected to hike rates at its December meeting amid soaring inflation in England. However, if the central bank decides to stay pat and not raise interest rates, we could see a sharp decline in the Pound value.
Earlier in the day, the UK Markit Services PMI revision brought it to 58.5 for November, somewhat below the previous number of 58.6.