Better than expected US non-farms should be the catalyst for a stronger dollar

New York (Dec 7)  US non-farm payroll figures released Friday showed that the US is making decent progress on the employment front and demonstrating that the US economy is recovering better than expected. Non-farm payroll figures are probably the most important and closely watched economic figures watched by the financial markets. Figures released showed that the US economy added a better than expected 203,000 to employment. The unemployment rate fell to

7 per cent in the US. A figure of 180,000 was expected and this non-farm payroll figure may be the deciding factor for the Fed decision on December 18th.

The US dollar soon after the release recovered against a number of major currencies and equity markets surged with the Dow Futures currently more than 150 points higher.

However, the surprise 203,000 increase may be a double edged sword as the better than expected figures may act as a catalyst in bringing forward tapering. The $85 billion dollar a month of bond purchases (quantitative easing) may be reduced sooner now as the economy shows signs of better recovery prospects.

With the US showing signs of stronger recovery, the weakness in the US dollar in recent weeks may start to reverse. With the US dollar above 1.3650 against the Euro and above 1.6330 against Sterling, both those currencies seem rather over-stretched and over-valued on fundamentals and especially on purchasing power. With tapering now seen to be closer, the US dollar will be a major beneficiary when it finally comes. Buy the US dollar!