The US dollar pared weekly losses after the release of a US jobs report that showed better-than-expected numbers. Wells Fargo analysts note that employment growth has been fairly broad across industries, including cyclical sectors such as construction and manufacturing. They argue that the labor market is still too hot for the Fed’s liking, and that much slower employment and wage growth is needed for inflation to sustainably reach the central bank’s 2 percent target. Key quotes: “Nonfarm payrolls again beat expectations, increasing by 263,000 in November. Employment growth was fairly broad across industries, including cyclically sensitive sectors such as construction and manufacturing. The increase in the average hourly wage was much stronger than expected, and again no new labor force was acquired that could set the water on fire: the share of the workforce fell by a tenth and is now below the level of January. „Wage growth of 263,000 is still too fast at this point in the economic cycle, and ~5% wage growth is 1-1/2 percentage points above the Fed’s inflation target. A rate cut, which increased by 50 basis points in December, seems likely, but the Fed still has room to move forward in its tightening cycle.
