USD/CHF: Dollar Rises as Payroll Gains Surpass Estimates

Upbeat labor market figures are believed to buoy the US dollar today opposite the Swiss franc as unemployment in the US fell to a near four-year low in November. Meanwhile, looming uncertainty over the Euro region’s battle to combat the debt crisis is seen to weigh on the Swissie after Italian Prime Minister Mario Monti expressed his plan to resign as soon as the budget bill is passed.

The jobless rate in the US fell to 7.7 percent in November, its lowest level since December 2008, as the economy appeared to shrug off the lack of progress in the fiscal cliff talks and the effects of Superstorm Sandy. In its latest Non-Farm Payrolls report, the Labor Department reported that 146,000 new jobs were added last month, considerably exceeding forecasts of 89,000.The government said Sandy, which slammed the densely populated East Coast in last October, did not trigger a substantive impact on the data. According to economists, November’s job gains suggest that the economy is moving in a trend-like modest job-growth environment.

Nevertheless, numerous factors suggest that the US labor market remains far from full health. The 0.2 percentage dip in unemployment was due to a decrease in the size of the labor force, signifying that frustrated Americans gave up the hunt for work. November’s rise in payrolls was also tempered by sharp downward revisions to the prior two months, which had their figures slashed by 49,000 positions combined. Economists also reiterate that payroll numbers need to break above 200,000 for a while to suggest a more sustained recovery under way. Still, job gains last month still came in as a positive surprise, exceeding forecasts of a bleak 89,000 gain in new positions and providing optimism that the US economy is maintaining its steady recovery.

In contrast, reignited concerns about Italy are foreseen to dampen market sentiment for the Euro-linked Swissie today. Italian Premier Mario Monti’s surprise announcement last Saturday that he plans to resign raised the prospect of an early election in February. According to analysts, uncertainty over who will succeed him will likely become the most pressing concern as he has been widely credited with restoring faith in the country’s capacity to combat the crisis. Former Premier Silvio Berlusconi, who has recently criticized Monti’s austerity measures, has expressed his intention to run for office again. Hence, fears that the next government will lose its appetite for austerity, pushing up Italian bond yields anew and risk another bout of contagion, are believed to weigh on sentiment. A long position then for the USD/CHF is recommended today.

Aviv N. Shapiro is a Senior Research Analyst and Business Development Officer for AlgosysFx.