Nonfarm Payrolls Drop: Dollar Hits Triple Hurdle, 50bps Rise Looms

Since the 50 basis point rate cut on September 18, the dollar unexpectedly indicated a gradual easing of interest rates. However, the recent non-farm employment data from the U.S. might compel the Federal Reserve to consider a significant rate cut.

In October, the U.S. saw a mere 12,000 new non-farm jobs added, far below the anticipated 113,000. Although the Federal Reserve attributed this to hurricanes and a strike by Boeing employees, it is sufficient to illustrate that the American economy is not as robust as the Fed claims.

Additionally, the soaring prices of gold and the expansion of renewable energy facilities are pitfalls that the dollar has faced or is currently facing, which also signifies that significant development opportunities may be on the horizon.

The non-farm data provides the answer

Despite the alarming low non-farm employment data in October, the unemployment rate remains unexpectedly stable at 4.1%. How can the number of employed individuals drastically decline while the unemployment rate hardly changes?

Advertisement

U.S. officials claim this is due to hurricanes impacting the southeastern states and the Boeing employee strike, yet this explanation has not been universally accepted by the market.

Analyzing the unemployment figures and new job additions over the past three months suggests that an increase in October's unemployment rate would be reasonable. Nonetheless, unemployment rates in America have remained stable.

This raises doubts about the authenticity of the U.S. unemployment rate, as it's plausible that the Federal Reserve may manipulate data to attract international capital back.

This further indicates that the American economy is not as strong as the Federal Reserve anticipates.

The rate cut on September 18 was aimed at alleviating a series of crises within the U.S., but it led to a significant outflow of international capital towards countries offering higher returns.

To prevent capital flight, the Federal Reserve has repeatedly communicated its intention to gradually lower interest rates, especially in light of the positive September non-farm employment data showing an addition of 254,000 jobs, surpassing expectations of 150,000.

In fact, the U.S. economy was already in recession when the Federal Reserve opted for rate cuts, and the dismal non-farm employment figures are likely to influence the Fed's monetary policy once again.

On November 7, the Federal Reserve is scheduled to announce its future policy direction, with rate cuts and economic recession mitigation being imperatives for the U.S.

One significant reason the dollar is the world's most commonly used currency is due to America's substantial gold reserves, totaling 8,133 tons, which account for approximately 20% of the global supply.

However, in recent years, the U.S. gold reserves have not seen much increase, while the quantity of dollars issued has continually risen amidst various regional conflicts. This disparity means that the value of gold backing the dollar could be significantly compromised; failing to address this imbalance may lead to the collapse of the credit system supporting dollar hegemony.

The persistent rise in gold prices underscores this issue, as the uncertainties stemming from geopolitical maneuvers and financial market instability compel more countries and financial institutions to invest in gold.

This implies that gold is viewed as a more stable and trustworthy asset than the dollar, further exacerbating the erosion of the dollar’s dominance and accelerating the process of de-dollarization.

Although the dollar detached from gold during Nixon's presidency, it subsequently became tied to oil, forming what is known as "petrodollars."

As the currency used to price oil, the dollar has become indispensable in international markets; however, Saudi Arabia—directly involved in this project—now prefers to settle oil trade in currencies other than the dollar.

Moreover, the proportion of oil resources used globally has been gradually declining, dropping from 33.06% in 2019 to 31.7% in 2023.

There is a clear uptick in the use of renewable energy, as wind and solar energy, along with electric vehicles, are progressively gaining traction.

This directly contributes to the current stagnation in international oil prices and the continuing devaluation of the dollar.

Furthermore, many nations are increasingly eschewing the dollar for settlements in global oil trade. Notable examples include Iran, which has shifted to using euros and renminbi for oil transactions, and Saudi Arabia, which has joined China's "Multilateral Central Bank Digital Currency Bridge Project," opting for non-dollar settlements in oil trade.

Additionally, Russia, facing extensive American sanctions, is steadily progressing towards de-dollarization in its oil trade.

Clearly, whether due to domestic economic downturns or the diminishing trust in the dollar on international markets, the culmination of these factors is accelerating the decline of dollar hegemony, which could, intriguingly, present favorable news for us.

Are new opportunities on the horizon for us?

The dreary non-farm employment data in October may increase the likelihood that the Federal Reserve will opt for another rate cut, which would be good news for us.

Firstly, this will prompt a significant inflow of international capital into the Chinese market, facilitating advancements in technological innovation and industrial upgrades. The liquidity of funds and markets will also experience notable changes.

Secondly, it will contribute to a certain degree of recovery in the global financial markets, alleviating pressure on Chinese import and export businesses.

Furthermore, the decreasing use of the dollar in global oil trade and the hypothetical establishment of BRICS payment systems aim to mitigate the financial risks associated with the dollar and achieve economic and financial independence.

Of course, this also facilitates the construction of a new global economic system, offering a safe, stable, and fair trade environment for most nations.

Clearly, we are presented with a favorable opportunity to change the current status quo, accompanied by risks and challenges; however, what is truly necessary is to discern global trends and align ourselves with the prevailing direction.