Non-farm data gap disrupts policy expectations, and the dollar surges to a new monthly high

On Wednesday, the US dollar market experienced a significant turning point. As investors reassessed the Federal Reserve’s policy environment, the US Dollar Index surged, posting its largest single-day gain since late September. The Bloomberg Dollar Spot Index rose 0.5% on Wednesday and closed at its highest level in over two weeks, reflecting market optimism about the dollar’s outlook.

Policy Logic Behind the Dollar’s Strength

The core factor driving the dollar higher is the market’s re-pricing of the Fed’s policy path. The U.S. Bureau of Labor Statistics announced that due to the federal government shutdown, the full October employment report will not be released as scheduled. More critically, the November non-farm payroll data, originally scheduled for December 5, has been postponed to December 16, nearly a week later than the Fed’s last policy meeting.

This delay directly weakens the data support for Fed decision-makers. Without complete October data and timely November employment reports, the Fed will face an information vacuum when assessing the economy. Against this backdrop, traders have dramatically adjusted their expectations for further rate cuts — CME data shows the probability of a rate cut in December has fallen from about 94% a month ago to around 30%, even lower than the 50% expectation from the previous day.

Chain Reaction in Financial Markets

The shift in the dollar’s trend was immediately reflected in the gold market. On Wednesday morning in New York, gold prices briefly rose to a daily high of $4132.86 per ounce but then faced a sharp decline. Influenced by the strong dollar, spot gold fell to a low of $4055.53 per ounce, with intraday volatility exceeding $77. By the close, gold only gained 0.26%, finishing at $4077.93 per ounce, far below its intraday high.

The impact of the dollar’s appreciation extends beyond precious metals. The British pound declined for the fourth consecutive trading day, falling 0.7% on Wednesday, marking the longest losing streak since October 24. The New Zealand dollar dropped to its lowest level since April, nearly erasing its gains for the year. The Japanese yen briefly fell 1.1% to 157.18 against the dollar, reaching its weakest level since mid-January.

Market Participants’ Consensus Expectations

Professional institutions generally believe that the dollar still has upside potential. US bank strategists suggest that although the dollar rebounded strongly today, the market still needs more data to determine whether a rate cut in December is warranted, leaving room for further dollar appreciation.

Wells Fargo strategists pointed out that, due to the lack of timely economic data, the likelihood of holding rates steady has increased significantly. Unless there is abnormally weak employment data in September, most policymakers are inclined to keep rates unchanged in December. Additionally, U.S. banks noted that the uncertain fiscal outlook in the UK has also supported the dollar’s rise, with the pound facing continued pressure ahead of next week’s UK budget announcement.

Policy Turning Point Amid Data Vacuum

Minutes from the Fed’s October 28-29 meeting have revealed disagreements among policymakers. Although the Fed decided to cut rates last month, concerns about lowering borrowing costs persist, with officials warning that further rate cuts could undermine efforts to curb inflation. The September non-farm payroll report is scheduled for release this Thursday, but the absence of October data means the Fed will have limited reference points for its December decision.

In this policy vacuum, market expectations for a December rate cut have fundamentally shifted. The dollar’s strong upward trend indicates that markets are fully prepared for the possibility of maintaining current monetary policy.