The US Dollar consolidated following the release of better-than-expected Nonfarm Payroll and other labor market data.

The US dollar exchange rate was weighed down by speculation surrounding the Fed's interest rate cut and the US economic situation. However, the release of Nonfarm Payroll data tonight (Dec 8th) shows that the outlook for interest rates and the US economy is still relatively good. USD immediately rallied against several other majors, while the US Dollar Index (DXY) attempted to consolidate above 103.50s.

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US Nonfarm Payroll data recorded an increase of 199k in November 2023. The figure was higher than the 150k increase in the previous period, exceeding the consensus estimate of 180k.

The US Unemployment Rate fell unexpectedly from 3.9% to 3.7%. Meanwhile, Average Hourly Earnings accelerated again at a pace of 0.4% (month-over-month) - higher than 0.2% last month.

The overall series of US labor market data outperformed previous market forecasts. Hence, analysts reminded again that speculations surrounding the Fed's current rate cut are premature and overblown.

"If the Fed is going to cut aggressively, it will be due to a recession and a notable drop in inflation led by unemployment. The numbers game of NFP (non-farm payrolls) suggests we are still far from those levels," said BNY Mellon's head of markets strategy and insights, Bob Savage.

"In the short term, the U.S. rates market has just gotten, I think, way too dovish on the Fed," said Stephen Miran, co-founder of Amberwave Partners. "The massive ease in financial conditions since the start of November basically means that the Fed doesn't need to cut to throw fuel on that fire."

Despite the caveats, the USD's reaction signaled that some market participants were sticking to expectations of a Fed rate cut starting in the first or second quarter of 2024. USD strengthened modestly against the euro and sterling but resumed weakness against some other currencies.

USD/JPY continues to be pressured at around 144.00, as traders are still trying to assess the prospects of a Japanese interest rate hike soon. USD/CAD also fell following crude oil prices rising for the first time in a week.