The euro US dollar exchange rate retreated following a mixed US non-farm payroll report. The pair rallied to a high of US$1.0992 before easing lower following the release.

The euro gained in the previous session thanks to better than forecast retail sales. Retail sales increased 0.3% month on month in August, a significant improvement from the -0.6% decline the previous month. Annually retail sales increased 2.1%.

The figures were particularly well received because retail sales can provide an indication of future inflation. Higher retail sales tend to mean higher inflation down the road. Given that eurozone inflation is just 0.9% any sign of an increase is good news!

There is no more eurozone data due to be released this week. The euro will move according to the dollar.

NFP Not As Bad As Investors Expected

The dollar advanced following the release of the US jobs report, the non-farm payroll. The headline figure showed that 136,000 jobs were created in September. This was only marginally below the 140,000 that analysts had forecast.

Average wages increased 2.9% year on year. This was slightly down from the previous months 3.2%. Meanwhile unemployment stole the show, dropping to 3.5%, down from 3.7%. This is the lowest level of unemployment since 1969.

After a week of dismal figures from the US, investors had been expecting a very weak report. The bar had been set low. Whilst this report wasn’t amazing by any stretch of the imagination it was definitely a lot better than what most market participants had been expecting.


How does the non-farm payroll (NFP) affect the US dollar?
It works like this, when there is low unemployment and high job creation, the demand for workers increases. As demand for workers goes up, wages for those workers also go up. Which means the workers are now taking home more money to spend on cars, houses or in the shops. As a result, demand for goods and services also increase, pushing the prices of the goods and services higher. That’s also known as inflation. When inflation moves higher, central banks are more likely to raise interest rates, which then pushes up the currency’s worth.


Investors will now turn their attention to Federal Reserve Chair Jerome Powell who will speak later today. Investors will be listening carefully for any clues as to what the Fed intends to do with monetary policy in light of this week’s figures.  According to the CME Fedwatch tool investors are assuming an 80% probability of a rate cut in October. The Fed have not said that they intend to cut rates. Any hints that the is Fed intending to hold still on rates could boost the dollar.


What do these figures mean?
When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.

For example, it could be written:

1 EUR = 1.12829 USD

Here, €1 is equivalent to approximately $1.13. This specifically measures the euro’s worth against the dollar. If the U.S. dollar amount increases in this pairing, it’s positive for the euro.

Or, if you were looking at it the other way around:

1 USD = 0.88789 EUR

In this example, $1 is equivalent to approximately €0.89. This measures the U.S. dollar’s worth versus the euro. If the euro number gets larger, it’s good news for the dollar.


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