The December jobs report marked yet another turning point for the US economy with the unemployment rate falling to 5.6%. The 0.2% drop saw the number of unemployed people dropping to 8.7 million – a decline of 383,000. During the course of 2014, the number of unemployed people declined by 1.1 million and the unemployment rate dropped by

Breaking down the stats further, the following unemployment rates for various demographics were evident: adult men (5.3%), adult women (5%), Asians (4.2%), Hispanics (6.5%), blacks (10.4%) and whites (4.8%). Further, the data revealed that long-term unemployment remained steady at 2.8 million (31.9% of all unemployed people). And the civilian LFPR dipped by 0.2% to 62.7% during December.

US household spending has increased in recent months, notably in the run-up to Thanksgiving and the holidays. Real GDP (Gross Domestic Product) has also increased quarter-on-quarter by as much as 2.7%. Between 2009 and 2013 the real GDP growth was 2.1%. According to the President of the Richmond Federal Reserve Bank – Jeffrey Lacker – there is a real chance that the US economy may grow by as much as 2.5% – 3% this year.

However, Lacker’s position in respect of raising interest rates is at odds with that of Janet Yellen who is waiting for a full recovery in the labour markets. The central bank remains concerned about low inflation which has been spurred on by plummeting oil prices. However, both Yellen and Lacker are in agreement that prices will rise, and with them the rate of inflation.

What the Jobs Report Means for the USD

Based on the above data, the USD rallied on Friday 9th January. It is likely that the Federal Reserve Bank will move swiftly to increase interest rates in Q1 or Q2, 2015, as opposed to later on in the year. When this happens, the dollar will be further strengthened on the international currency markets. In terms of non-farm payrolls, the US economy has consistently added over 200,000 employees every month since February 2014. This stretch has not been witnessed in over 20 years.

However, there was a downside to the jobs report and it came in the form of decreased hourly earnings (-$0.05 p/hour). However, Banc De Binary analysts believe that the bulk of dollar sentiment has already been factored into the equities and currency markets, with little room for further bullish sentiment vis-à-vis the dollar. The euro took another beating on the currency markets however it regained ground and was trading around $1.1840 towards the end of the day on Friday. The euro hit a 9-year low against the greenback on Thursday 8th January when it dipped to $1.17540. The GBP was trading at $1.5163, and the USD/JPY currency pair was trading at Y118.6400.

How Europe is coping with Global Economic Conditions and a Possible ‘Grexit’

Analysts from Goldman Sachs are going short on the euro for Q1 2015. They expect a rate of $1.14 by March 2015, and parity with the USD within 2 years. Both France and Germany expect the ECB to adopt aggressive monetary policy measures with quantitative easing (bond repurchases) by their next meeting on January 22nd 2015. The industrial output figures from both these European countries declined sharply. Fair value for the EUR/USD currency pair is seen at 1.20, but the euro is likely to remain well below that given current global economic conditions.

The upcoming election in Greece will be another major test for the European currency unit as the Syriza party may be elected to power and remove Greece from the currency union. The hard left party seeks to break the ‘shackles of austerity measures’ and embark upon a spending campaign to assist those in need and drive economic growth. However, the bailouts that were offered to Greece came with repayment terms and conditions which Syriza is seeking to upend.

For her part, German chancellor Angela Merkel does not want to meddle in the domestic affairs of another sovereign nation but she certainly doesn’t want to saddle Germans with Greek debt. Negotiators in the eurozone have insisted that the issue of Greek austerity measures and the currency are not a German/Greek issue; rather they are a eurozone issue. The possibility of a Greek Exit – Grexit – is unlikely, but what is a real possibility is the relaxation of repayment terms.

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