US jobs hike boosts market and dollar but focus turns to future

3rd October 2014

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US jobs data has boosted markets and sentiment but investors should be wary about the implications the latest showing of economic strength has on future rate rises.

The latest round of jobs data shows the US economy added 248,000 jobs in September, overshooting the 215,000 that was expected and pushing the unemployment rate down to 5.9%, its lowest level since 2008.

The good news showed that last month’s figures that showed just 142,000 being added was somewhat of an aberration and allowed investors to once again be confident in the recovery of the world’s largest economy.

The Share Centre invest research analyst Helal Miah said: ‘Along with other recent leading economic indicators, points towards further evidence of a sustaining recovery in the world’s largest economy, which should boost confidence in other parts of the world.’

However, Miah said the jobs data should act as a flag to impending interest rate rises in the US.

‘Investors should be aware that these positive numbers do have implications for interest rates and will bring forward the market’s expectation of when the US Federal Reserve will begin to raise the benchmark rate from its historic lows. Expectations of a rate rise along with the fact quantitative easing is due to end soon will lessen the appeal of risky assets, such as equities,’ he said.

The data had a beneficial effect on the US dollar as it strengthened sharply on the news to reach a four-year high.

Davi Lamb, senior dealer at foreign exchange company FEXCO, said: ‘Such a huge rebound is acting like a red rag to the bulls. With investors stampeding back into the Greenback, August’s insipid jobs report has been unceremoniously trampled underfoot.

‘The dollar strengthened to a two-year high against the euro earlier this week, and today’s outstanding jobs number kicked it up yet another gear. For the unemployment rate to have fallen to its lowest level since the summer of 2008 is an unequivocal sign that the US economy is firmly back on song.’

Lamb predicted that the dollar will be pushed even higher as a decision on interest rates moves closer.

‘With the previous month’s jobs number revised up by a whopping 38,000 the bulls will feel justified and may drive the dollar even higher in the run up to the crucial interest rate decision on 29 October,’ he said. ‘With QE3 due to wind up by the end of the month, and the Fed sounding ever more hawkish about an interest rate rise, the bulls and the hawks are likely to drive the dollar to new heights in October.’

 

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