Better Than Expected Jobless Claims Helps USD Firm, Mixed Signs Continue from US Labor Market

The Dollar firmed across the board following the release of jobless
claims data which showed claims falling 37K to 404K.
As we can see from our chart of jobless claims above jobless claims
have been a part of the recent success story in US data. If you zoom
in on the last two-three years in we can see that throughout the first
half of 2010 jobless claims bounced around the 500K and 450K levels.
It wasn't until late October that claims fell below 450K, and most
recently they came down to a 2 and 1/2 year low at 388K on Dec 30th.

The feel good story around the labor market was taken down a notch
when the December non-farm payroll report came in weaker than
expected, with 103K gained compared to 159K forecast. Last week,
jobless claims were shown to have jumped by 35K to 445K, a
disappointing figure that combined with NFP report cast some doubt on
the US labor market.

Today's report goes some way to dispel some of that anxiety, as we
saw claims go back to the 400K area. In today's NY session, the
report helped to stiffen the US Dollar. That's the short term
implication, but the labor market is the key factor in whether the
current uptick in US data will be sustainable. The Fed believes that
the labor market is not ready and therefore is steadfast behind its
second round of Quantitative Easing.

If employment data like jobless claims continued to improve, and we
see tangible evidence of this in the upcoming non-farm payroll report
better data then the Fed's thinking can shift. This would be double
true if we had some higher inflation readings as well.

Positive data in the US labor market therefore has the chance to alter
the FOMC's current policy and that could have strong implications
for the US Dollar. Monitoring the labor market is an ongoing thing,
but the weak report from last week may be now blamed for on seasonal
adjustments than weakness.
Source: Fxstreet.com