The dollar index (DXY00) Friday rose by +0.51% and posted a 7-week high. The dollar has rallied every day this week as stronger-than-expected US economic news reduced the chances for a 50 bp Fed rate cut at next month’s FOMC meeting.  Friday’s US Sep payroll report added to recent hawkish news as nonfarm payrolls and average hourly earnings rose more than expected, hawkish factors for Fed policy.  According to the swaps market, the chances of a 50 bp rate cut by the Fed at the November 6-7 FOMC meeting fell to 0% Friday from 35% Thursday.  The dollar also has support on increased safe-haven demand from the escalation of hostilities in the Middle East.   

US Sep nonfarm payrolls rose +254,000, showing a stronger labor market than expectations of +150,000 and the largest increase in 6 months.  The Sep unemployment rate unexpectedly fell -0.1 to 4.1%, showing a stronger labor market than expectations of no change at 4.2%.

US Sep average hourly earnings rose +0.4% m/m and +4.0% y/y, stronger than expectations of +0.3% m/m and +3.8% y/y.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 0% for a -50 bp rate cut at that meeting.

EUR/USD (^EURUSD) Friday fell by -0.52% and posted a 7-week low.  Friday’s stronger-than-expected US Sep payroll report pushed the dollar higher and undercut the euro.  Dovish comments Friday from ECB Governing Council member Centeno also weighed on the euro when he said inflation in the Eurozone is close to 2%.

French Aug industrial production rose +1.4% m/m, stronger than expectations of +0.3% m/m and the largest increase in 15 months.

ECB Governing Council member Centeno said, "The dynamic of the labor market in the Eurozone is cooling a bit, and inflation is very close to 2%."

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 91% for the October 17 meeting and at 100% for that -25 bp rate cut at the December 12 meeting.

USD/JPY (^USDJPY) Friday rose by +1.30%.  The yen Friday tumbled to a 7-week low against the dollar.  The yen is under pressure, as comments this week from Japanese Prime Minister Ishiba and BOJ Governor Ueda signaled that the BOJ is not in a hurry to raise interest rates.  The yen extended its losses after Friday’s stronger-than-expected US Sep payroll report pushed T-note yields sharply higher. 

Swaps are pricing in the chances for a +10 bp rate hike by the BOJ at 3% for the October 30-31 meeting and at +27% for that +10 bp rate hike at the December 18-19 meeting.

December gold (GCZ24) Friday closed down -11.40 (-0.43%), and December silver (SIZ24) closed down -0.070 (-0.22%).  Precious metals Friday settled moderately lower.  Friday’s stronger-than-expected US Sep payroll report pushed the dollar index to a 7-week high, weighing on metals prices.  Friday’s strong payroll report also reduces the chances of a 50 bp Fed rate cut at next month’s FOMC meeting, a bearish factor for gold.  Also, higher global government bond yields Friday were bearish for precious metals.  In addition, Friday’s rally in stocks curbed safe-haven demand for precious metals.

Losses in precious metals are limited due to the escalation of Middle East hostilities that have boosted safe-haven demand for precious metals.  The markets are awaiting Israel’s response to Tuesday’s missile barrage from Iran after Israeli Prime Minister Netanyahu vowed to retaliate, saying Iran “made a big mistake” and “will pay.”  An increase in US inflation expectations also boosts demand for gold as an inflation hedge after the 10-year breakeven inflation rate rose to a 2-month high Friday.

• Stocks Supported as US Payroll Report Underscores Economic Strength
• Dollar Soars as Bond Yields Jump on US Labor Market Strength
• Dollar Climbs on Safe-Haven Demand from Middle East Risks
• Stocks Tilt Lower as Oil Prices Spike