Dollar Rallies on Strong Payrolls (9 – 13 November)

The US dollar strengthened as better employment figures reinforced expectations for another Federal Reserve rate hike in December. October nonfarm payrolls increased by 165,000, more than double the 65,000 forecast, while unemployment declined to 4.1%. The Dollar Index advanced to 102.2, supported by resilient labor market conditions and safe-haven demand amid a global equity selloff. Concerns over AI valuations and potential regulatory changes following the US midterm elections also weighed on risk appetite.

Middle East developments continued to influence energy markets and inflation expectations. Brent crude traded near $98 after losing more than 12.5% over the week, as investors balanced renewed US-Iran tensions against hopes for diplomatic progress. Meanwhile, Eurozone inflation accelerated to 4%, its highest level in three years, strengthening expectations for further ECB tightening. In the UK, the Bank of England raised rates for the first time in more than three years, while stronger Japanese wage growth supported expectations for another BOJ hike in December.

Market Drivers & Catalysts

• US Employment Surges: October payrolls increased by 165,000, far exceeding the 65,000 forecast, while unemployment declined to 4.1%.
• Fed Hike Expectations Strengthen: Stronger hiring, faster wage growth, and persistent inflation risks reinforced expectations for another rate increase in December.
• AI Sector Concerns: A global technology selloff driven by valuation worries and potential regulatory changes following Democratic gains in the US midterms increased safe-haven demand.
• Middle East Tensions Persist: Tanker attacks in the Strait of Hormuz continued despite reports that Iran submitted a new nuclear proposal through Qatar.
• Oil Prices Decline: Brent lost more than 12.5% over the week, trading near $98 as diplomatic hopes and easing supply concerns pressured prices.
• European Inflation Accelerates: Eurozone inflation reached 4% in October, supported by a 20.8% increase in energy prices.

Fixed Income

• US 10-Year Treasury Note Yield: The US 10-year Treasury yield briefly rose 6 basis points to 4.9% before settling near 4.86% following stronger employment figures. October payrolls increased by 165,000, while lower unemployment and faster wage growth reinforced expectations for another Fed hike in December. A recovery in equities reduced some safe-haven demand, while investors assessed the potential fiscal and regulatory implications of Democratic gains in Congress.
• UK 10-Year Bond Yield: UK 10-year gilt yields climbed above 5.15%, recovering from recent two-month lows as stronger US employment data lifted Treasury yields and Fed tightening expectations. Safe-haven demand during the global technology selloff limited the increase. Investors also assessed the Bank of England’s first rate hike in more than three years, with markets pricing in another three increases by November 2027.
• Japan 10-Year Government Bond Yield: Japan’s 10-year government bond yield declined toward 2.67%, reaching a four-month low as the global equity selloff increased demand for safer government debt. Concerns over tighter AI regulation following the US midterms and expectations for lower oil prices supported bonds. However, Japan’s strongest nominal wage growth in nearly three decades and hawkish BOJ meeting minutes maintained expectations for a December rate increase.
• Germany 10-Year Bund Yield: Germany’s 10-year Bund yield fell below 3.25%, its lowest level since late August, as weakness in global technology stocks increased demand for government bonds. Democratic control of the US House also eased concerns over future American borrowing. However, Eurozone inflation reaching 4% and hawkish ECB commentary continued to support expectations for further monetary tightening.

Commodities

Gold traded near $4,050 per ounce, retreating as the dollar strengthened following the stronger US employment report. October payrolls rose by 165,000 against forecasts of 65,000, while unemployment declined to 4.1%. Faster wage growth and elevated inflation concerns strengthened expectations for another Fed hike in December. Despite the pullback, gold remained more than 4% higher for the week, supported by safe-haven demand following the US midterm elections.

Silver traded just below $52 per ounce as stronger US employment data supported the dollar and expectations for another Fed rate hike. October payrolls increased by 165,000, unemployment declined to 4.1%, and upward revisions to previous employment figures reinforced the labor market’s strength. Despite pressure from higher rate expectations, silver gained more than 6% over the week as investors sought safer assets amid equity market volatility.

Currencies

• U.S. Dollar Index (DXY): The Dollar Index advanced 0.6% to 102.2 after October payrolls increased by 165,000, substantially exceeding the 65,000 forecast. Unemployment declined to 4.1%, reinforcing expectations for another Fed rate hike in December. Safe-haven demand amid the global equity selloff and concerns over AI valuations and regulation provided additional support.
• Euro: The euro weakened below $1.115, approaching multi-month lows as strong US employment figures and safe-haven demand supported the dollar. ECB President Christine Lagarde emphasized the importance of upcoming economic data in determining whether another rate increase would be appropriate in December. Eurozone inflation accelerated to 4% in October, its highest level since September 2023, driven by rising energy prices.
• British Pound: Sterling declined below $1.335, retreating from nearly two-month highs as stronger US employment data lifted the dollar. Investors continued to assess the Bank of England’s first rate increase in more than three years. Governor Andrew Bailey signaled that further tightening may be necessary unless the Iran conflict ends, with inflation potentially reaching 4.9%. Markets currently price in another three hikes by November 2027.
• Japanese Yen: The yen traded around 157.8 per dollar after two consecutive sessions of gains. Japan’s nominal wages increased at their fastest pace in almost 30 years, strengthening expectations for a December BOJ hike. Hawkish BOJ meeting minutes and safe-haven demand amid the global equity selloff also supported the currency.

Economic Data Highlights

• US Nonfarm Payrolls: Employment increased by 165,000 in October, well above the 65,000 forecast and the previous year’s monthly average of 48,000. Professional and business services added 70,000 jobs, health care gained 42,000, transportation increased 25,000, and manufacturing added 19,000. August and September payroll figures were revised upward by a combined 84,000.
• US Unemployment: The unemployment rate declined to 4.1% from 4.2%, as employment increased by 463,000 and the number of unemployed fell to 7.07 million. Labor force participation rose to 61.9%, while the employment-to-population ratio reached 59.3%, its highest since February. However, the broader U-6 underemployment rate increased to 7.9% from 7.6%.
• US Job Openings: JOLTS openings increased by 333,000 to 7.52 million in September, a four-month high and above expectations of 7.10 million. Professional and business services, government, and manufacturing led the increase. Layoffs fell to their lowest level since March 2025, while the quits rate climbed to 2.1%, its highest in more than a year.
• Eurozone Inflation: Annual inflation accelerated to 4.0% in October from 3.8%, its highest since September 2023. Energy inflation reached 20.8% amid Middle East supply disruptions, while services and unprocessed food inflation also increased. Core inflation remained at 2.5%, with faster price growth in France and Italy but slightly lower rates in Germany and Spain.

Macro Calendar Highlights

• Tuesday, November 10: US NFIB Small Business Optimism Index.
• Thursday, November 12: UK GDP, Industrial Production, and Manufacturing Production; US Consumer Price Index (CPI), Core CPI, and Initial Jobless Claims.
• Friday, November 13: Eurozone GDP, Industrial Production, and Employment Change; US Producer Price Index (PPI), Core PPI, and University of Michigan Consumer Sentiment.