Dollar to Pound Sterling Outlook: Softer US Jobs Makes a FED Christmas Cut More Likely

December 8, 2024 - Written by David Woodsmith

STORY LINK Dollar to Pound Sterling Outlook: Softer US Jobs Makes a FED Christmas Cut More Likely

Friday’s Jobs Report was mixed.

The headline number beat expectations, but the unemployment rate rose.

The Fed will be more concerned with the latter and the report has increased the odds of a December cut to around 84%.

Friday’s Jobs Report had the potential to shift the odds of a December cut which stood at 68% ahead of the release with 12 days to go until the FOMC meeting. The bar was set quite high, though - it would have taken for some very hot readings and a CPI beat next week to take a cut off the table.

The release showed some data was slightly hotter than expected. Expectations were for a +218K headline print, and this was exceeded with a +227K reading. Average Hourly Earnings were expected to drop from 0.4% to 0.3% but stayed at 0.4%. These stronger readings were balanced out by a rise in the unemployment rate to 4.2% when it was expected to stay at 4.1%.

The odds of a cut in December rose following the release and now stand at 87%. Obviously, the headline beat was overshadowed by the other area of softness. Remember, it was a rising unemployment rate in the summer which led to significant dovish shift in the Fed and a 50bps cut in September. As Nick Timiraos, Chief economics correspondent of The Wall Street Journal pointed out on X, the data from November is similar to the July scare:

“The unemployment rate, arguably the best summary statistic in the monthly jobs report, ticked up to 4.2% in November. Unrounded, it was 4.246%, leaving it very close to the recent high of 4.253% recorded in July.

Job growth in the establishment survey has been fine. But the household survey showed the share of Americans (including the 25-to-54-year-old cohort) who were working in November was down from a year ago. The number of unemployed, at 7.145 million, was also close to the July high of 7.163 million.”

Furthermore, as ING point out, the headline beat may not be as impressive as first thought.

“...this report has to be viewed in the context of the returning Boeing workers who had been on strike through October and return of workers not counted due to Hurricane Milton impacting the number count in Florida and other states. Therefore the “true” payrolls figure is closer to 115k. If we take an average of October and November to account for the distortions it is 131.5k, so the cooling trend remains very much in place.”

Long-term yields are lower following the release, as concerns over unemployment may get the Fed to cut more next year. The 10Y yield has fallen from a November high of 4.5% to a rate of 4.14% on Friday. The US dollar initially dropped, but recovered back to trade flat for the session.

The reaction in stock markets is more complicated to assess. Did they want a strong report which could jeopardize a December cut, or a weak one and a certain cut? The middle ground outlined in the report was probably the most beneficial and the S&P500 made small gains to 6090, just a few points from an all-time high. An unemployment rate of 4.2% is high enough for a cut, but not at panic levels, yet. That said, a further increase in the following months could be problematic.

The focus will now shift to next week’s CPI release. This has been higher than the Fed would like, but not at a level to cause any major re-think on policy. It would take a particularly strong number to cancel the Christmas hike.

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TAGS: Dollar Pound Forecasts