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The dollar is set to hold its gains for as long as strong U.S. jobs data keeps a December Fed hike in play, adding rate support to the haven demand already lifting the currency in the AI stock selloff.
The dollar now has rate support on top of the haven demand created by the AI stock selloff, after U.S. employers added far more jobs in October than economists had expected.
Non-farm payrolls rose by 165K in October against a consensus forecast of 70K, the Bureau of Labor Statistics said on Friday.
September's figure was revised up to 60K from 29K, and the unemployment rate fell to 4.1% from 4.2%.
Average hourly earnings rose 0.4% in the month, above the 0.3% expected.
"The dollar is advancing and Treasury yields are climbing across the front end of the curve as traders upgrade expectations for the Fed's policy path over the next year," says Karl Schamotta, Chief Market Strategist at Corpay.
The dollar extends its gains after the release: the pound-to-dollar exchange rate is down 0.7% at 1.3356, having traded near 1.3390 ahead of the data.
The euro-to-dollar rate is down 0.64% at 1.1147.
The jobs data adds to the dollar's strength as the best-performing G10 currency on Friday, after the selloff in AI stocks spread from Wall Street to Asian markets, as Pound Sterling Live reported this morning.
Markets had trimmed the odds of a further Federal Reserve hike in December to around 70% from 80% ahead of the release, as the selloff pulled two-year Treasury yields lower.
"This report suggests that the labour market remains near full employment in the US, which should free up the Fed to continue to focus on the inflation fight," says Helen Lao, an economist at CIBC Capital Markets.
CIBC continues to expect a 25 basis point hike at the Fed's December meeting.
"The economy can clearly handle it so it would be a surprise at this point if we don't end the year with another hike," says Kit Rees, Investment Strategist at Quilter.
U.S. stocks suffered their worst session since April 2025 on Thursday, on fears that the Democrat-controlled Congress will slow the AI data-centre buildout.
"The US economy is running hard which may mean the risks the markets are worrying about at the moment are not such a risk to the real economy as is being feared," says Neil Birrell, Chief Investment Officer at Premier Miton.
Payrolls rose by 70K in professional and business services and by 7K in finance, while employment in the information sector fell by only 1K.
"This report also presents a more favorable picture of the impact of AI on labor demand," says Samuel Tombs, Chief US Economist at Pantheon Macroeconomics.
Analysts Warn the Dollar's Rate Support Could Fade in 2027
However, Pantheon's Tombs expects the market rout to slow U.S. hiring next year, as tighter financial conditions feed through to the jobs market with a lag of six to nine months.
"A prolonged tightening cycle looks unnecessary in view of the tightening of financial conditions and a likely building AI drag," he adds.
Pantheon expects a December hike, no further Fed tightening in 2027 and 75 basis points of rate cuts by the end of that year.
"US short-dated yields have already fallen quite a bit, narrowing the dollar's yield advantage somewhat," says Fawad Razaqzada, Market Analyst at StoneX.
"But for now, and in light of the strong jobs report, the dollar remains supported," he adds.
U.S. inflation figures are due on Tuesday, and StoneX expects them to carry more weight for the dollar than Friday's jobs report because the Fed is focused on inflation.
GBP/USD trades just below its 50-day average at 1.3362, and has room to extend its decline to the 20-day average at 1.3349 should Tuesday's inflation figures firm up the case for a December hike.
