US Dollar shrugs off poor nonfarm payrolls, but suffers from election polls – Commerzbank

The labor market report on Friday had no lasting negative impact on the US dollar. The abysmally low number of new jobs created did not harm the dollar because (a) the unemployment rate did not surprise on the downside and (b) there were enough special effects to explain a downward deviation of the nonfarm payrolls figure, without the US labor market having to be assumed to be in freefall, Commerzbank’s Head of FX and Commodity Research Ulrich Leuchtmann notes.

The key driver is the upcoming US election

“Depending on which of the announcements made by Donald Trump and his cronies are taken seriously, the US economy could soon look quite different if he wins the election. The key driver is therefore tomorrow's US election. The polls published over the weekend have probably shaken the certainty with which some market participants may have bet on Trump's victory. At least the greenback has weakened significantly with and since the start of trading in Asia.”

“In my view, two polls are particularly noteworthy: one by the New York Times, which sees Kamala Harris ahead in North Carolina and Georgia, two states where most polls so far have seen Trump ahead, one, considered a high-quality survey, which sees Harris ahead in Iowa, a state that has so far been largely considered a ‘solid red’ by pollsters. Both surveys show that the supposedly small confidence bands, which suggest a high degree of accuracy in the surveys, may have been taken too seriously by those who believed that a Trump victory is all too likely.”

“The Iowa poll mentioned above, for example, seems to be based primarily on the fact that particular care was taken to capture the voting behavior of female swing voters, the majority of whom are repelled by Trump's family policy. This raises the suspicion that most polls that backed the Trump trade could be subject to a systematic error. The Trump trade appears riskier and is only worthwhile if the risk premium is correspondingly higher, i.e. if the USD is cheaper.”