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The US labor market report has done the job again - UBS

FXStreet (Córdoba) - The data from the November nonfarm payroll report is very strong and reaffirms UBS expectation that the US Federal Reserve will be able to hike its key policy rate for the first time since the financial crisis at its December 16 meeting.

Key Quotes

“Both US yields and the US dollar initially jumped higher after the announcement. Overall, we continue to see the USD being supported and expect some of the ECB-related jump in EUR/USD to reverse.”

“Our November 6 publication was called "The US labor market report has done the job." On that day, the October labor market report showed a robust and above-consensus 271,000 newly created jobs. We believed then that a strong number would be enough to pave the way for a December Fed rate hike. Today's release has made the case for a rate hike even stronger. First, the exceptionally strong October number of 271,000 was revised even higher to 298,000. Second, the November figure came in at 211,000, above the 200,000 that consensus expected. To top it all off, labor force participation also picked up.”

“The November report was the last important data release before the Fed makes its interest rate decision. We retain our view that the first rate hike in December is almost certain. But the more important aspect of the December meeting will be the path and pace of subsequent hikes. In our view, the Fed will cite its conviction in a strong US economy to justify the first rate hike. However, Janet Yellen will balance her words carefully to also reflect concern about a too-strong dollar pushing down import prices and thereby making further rate hikes very much conditional on the USD exchange rate.”

Our forecast for a lower EUR/USD remains in place and we continue to see it moving towards the lower end of our 1.00-1.10 forecast over coming weeks.”

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