Foreign Exchange Commentary

Summary

• Canadian dollar remains soft after long delayed U.S. jobs report, above C$1.40.
• The U.S. dollar rose to its highest levels in two weeks ahead of the long-awaited September U.S. jobs report.
• U.S. September nonfarm payrolls rose a better-than-expected +119,000 versus +51,000 forecast while unemployment the rate rose to 4.4% from 4.3%.
• Traders trimmed bullish Japanese yen views as spot touched 10-month lows. Japan says it is concerned by sudden, one-sided FX movements, perhaps, hinting at intervention in the near future.
• U.S. Treasury yields remain solidly above 4% on the benchmark 10-year bond yield, currently at 4.11%.
• U.K. pound sterling remains in lower band, trading around $1.31.
• New Zealand dollar falls to lowest level since April, erases YTD gains.
• Mexico peso firm but remains above 18 per one U.S. dollar.
• U.S. August trade deficit $59.6 billion versus estimate of -$60.4 billion.
• September U.S. retail sales report rescheduled to November 25^th.
• FOMC minutes show officials discussed balance sheet composition.

Noteworthy

• Hiring defied expectations in September, with 119,000 new jobs
• U.S. dollar stronger this week before giving back slightly today

The U.S. dollar turned marginally lower Thursday, after a strong performance this week, against a basket of currencies when delayed government data showed U.S. employers added more jobs than anticipated in September, but the unemployment rate unexpectedly ticked up.

Nonfarm payrolls rose 119,000 in September, above the 51,000 forecast by economists. However, August’s payrolls number was revised to a loss of 4,000 jobs, and July’s payrolls were revised slightly lower to a 72,000 gain. That meant employment in July and August combined was 33,000 lower than previously reported. The unemployment rate rose to 4.4% from 4.3% in August.

The unemployment rate, which is based on a separate survey from the jobs figures, rose slightly to 4.4%, reaching the highest level in four years as nearly half a million people joined the labor force. Economists expected the unemployment rate to hold at 4.3%.

The data was delayed due to the recent government shutdown. The full October data won’t be released, and the November data aren’t due until Dec. 16, after the Federal Reserve’s Dec. 10 meeting.

Separately, the Labor Department released updated weekly jobless claims that suggest layoffs didn’t rise sharply during the government shutdown, which ended last week. In the week through Nov. 15, 220,000 people newly filed for jobless benefits—broadly in line with the range that held for most of 2025.

The report also showed that the number of continuing unemployment claims, a measure of the size of the unemployed population, rose by 28,000 to 1,974,000 in the week ended Nov. 8. That was the highest level since November 2021 and reflects a low-hire environment where it has been difficult for those workers who are laid off to find work again.

The latest data will likely do little to resolve the debate at the Federal Reserve, where some policymakers, wary of inflation, want to leave rates on hold, while others are pushing for a rate cut in December as insurance against a labor market deterioration.

Economic hawks (those favoring restrictive policy) can point to the bump up in job growth as a reason to postpone any further easing, while economic doves (those favoring expansionary policy) can focus on the rise in the unemployment rate, as well as the general trend toward weaker job growth, as reasons to cut. Thursday’s report was the last official snapshot the Federal Reserve will see before the next rate-setting meeting in December. As a result of the shutdown, the Labor Department pushed back its release of the November jobs report to Dec. 16, the week after the rate decision. It will also release some October jobs data on that day.

“There’s no sign of a rapid deterioration in the American labor market that warrants a rate cut out of the Federal Reserve,” said Joseph Brusuelas, chief economist at RSM. Thursday’s data point to “sustained modest growth in the economy and employment,” he added.

Interest-rate futures implied the odds of a quarter-point cut at the December meeting stood at about 40% following Thursday’s report, up from about 30% earlier.

In September, employers added jobs at a steady clip in retail, construction, healthcare, leisure and hospitality and government. They let go of workers in transportation and warehousing and temporary help services. Those are often the industries that pull back on hiring first in a slowdown as households and businesses rein in spending.

Though greatly delayed, these numbers were initially scheduled for release on Oct. 3, the September report offered the first official look since before the shutdown on the state of a critical economic marker for investors and policymakers. The Federal Reserve, for instance, uses the job report to help it make decisions about interest rates.

While the federal data is incomplete, there are other signs that the labor market remains unsettled. A broad range of major companies, affecting many industries, recently announced they were cutting thousands of corporate jobs.

Meanwhile, consumer sentiment dropped in early November on concerns about the shutdown’s negative economic impact, according to a survey by the University of Michigan. More than 70% of households said they expect unemployment to increase over the next year.

A survey from the National Federation of Independent Business (NFIB) found small-business optimism also declined slightly in October. Owners reported lower sales and reduced profits, NFIB said, and many firms said they were having difficulty finding labor.

In currency markets, the U.K. pound sterling could rise against the dollar next year as the Bank of England (BoE) is likely to be more cautious about cutting interest rates compared to the U.S. Federal Reserve.  Additionally, Britain has sticky inflation and a complicated fiscal backdrop, meaning the BoE could cut rates at a gradual pace.

As it relates to the euro currency, many foreign exchange traders believe interest rate differentials could lift the euro versus the U.S. dollar in 2026.  The European Central Bank is likely to keep rates on hold, while the Federal Reserve could cut rates further in 2026, narrowing the rate differential and supporting the euro currency versus the U.S. dollar.  Eurozone growth is likely to pick up next year as German fiscal stimulus makes its way through the economy.

The euro currencies’ decline against the U.S. dollar since the end of June could be overdone.  The euro’s undervaluation versus the dollar has risen back to 2%, meaning any declines below $1.15 should prove unsustainable.