The dollar jumped more than one per cent to a seven-month high and short-term benchmark US bond yields rose to their highest in five years yesterday, after stronger-than-expected jobs data left investors expecting the first rise in US interest rates in almost a decade next month.
Wall Street dipped modestly, rebounding from earlier losses, a sign that investors have grown comfortable with the idea that the Fed will raise rates before the end of the year.
The health of the US labour market is a key factor in the Federal Reserve’s thinking.
total of 271,000 non-farm jobs were added in the US economy last month, easily topping expectations of 180,000. That was the largest rise since December 2014, with wages also increasing at a robust clip.
The unemployment rate fell to five per cent while payrolls data for August and September were revised to show 12,000 more jobs created than previously reported.
That boosted federal-funds futures contracts that bet on the Fed’s next moves. Expectations for a December increase were up to about 73 per cent in the wake of the report, from 58 per cent one day ago.
The two-year Treasury yield rose to its highest in five years, boosting the gap between US and German yields to its widest since late 2006. The two-year yield rose to 91 basis points, while the 10-year sold off, boosting its yield to 2.34 per cent.
The Dow Jones industrial average fell 38.38 points, or 0.21 per cent, to 17,825.05, the S&P 500 lost 8.95 points, or 0.43 per cent, to 2,090.98 and the Nasdaq Composite added 2.82 points, or 0.06 per cent, to 5,130.56.
“We’ve seen in the past seven to ten trading days the likelihood of a Fed increase has been rising and yet we’ve seen the equity markets handle that pretty well,” said Sean Lynch, co-head of global equity strategy at Wells Fargo Investment Institute in Omaha, Nebraska.
A broad worldwide index of equities was lower, losing 0.6 per cent.
The dollar rose more than one per cent against most major currencies such as the euro, the yen and the British pound.
Sterling fell to a six-month low against the dollar and also slipped against the euro, a day after it was sent tumbling after the Bank of England kicked a UK rate hike down the road.
It fell to $1.5073, down 0.9 per cent on day.
The stronger dollar added downward pressure to crude oil, which was already dragged down by oversupply concerns, and to Opec currencies.
US crude fell 1.8 per cent to $44.39 a barrel, after falling more than two per cent in the previous session. Brent dropped 1.1 per cent to $47.43 a barrel.
Spot gold was down to $1,086 an ounce, a three-month low, and on track for a 4.5 per cent loss for the week.