From the looks of some key economic data and forex market, it appears that the US economy may be all set to take a turn for the better. As per the latest update by the US Labor Department, the nation added 200,000 jobs in the month of December on the back of around 120,000 jobs added in the month of November. This is like a huge new year's gift for the US. This is not the only improvement that the US economy experienced. The Consumer Board's Consumer Confidence Index lifted from 56.0 in November to 64.5 in December, signaling that consumers are now more confident than before on the performance of the US economy.
This is a very favorable development as consumers are the key for the US economy and forex trading industry since nearly 70% of the US GDP is accounted for by consumption expenditure. With this increase in the employment numbers, the US unemployment rate fell to 8.5%, nearly the lowest in the last three years. Moreover, this was the sixth consecutive month in which the US economy added over a 100,000 jobs each month, suggesting that there is increase has been consistent and is not just an aberration. Unfortunately, the rate of employment growth is not yet strong enough to take the US economy to the prerecession level quickly. The good news about the jobs growth was that while the government sector pared around 12,000 jobs, the private sector added 212,000 jobs leading to a net addition of 200,000 jobs.
Besides the encouraging jobs growth number, the both the ISI manufacturing and non manufacturing indices showed improvement, suggesting that enhanced economic activity is leading to employment generation resulting in enhanced incomes. This feeds in to demand growth and also boosts consumer confidence. Thus, as of now, the US economy seems to be getting into a positive growth cycle. The ISI Manufacturing Index was at 53.9 in December, up from its previous reading of 52.7. The ISI Non Manufacturing Index also recorded improvement and was at 52.6 in December, up from 52 in its previous reading. New home sales also registered a gain in December over the previous period recorded, however, sale of existing homes dropped. Thus, home sales signaled a mixed trend and should hopefully improve over time.
The positive economic data in the US led the US dollar to demonstrate strength and moved up against major currencies as well as gold. The improved payroll position in the US eases the pressure on the US Fed to ease monetary policy further, which signals for a stronger US dollar. The drop in gold prices in dollar terms also suggests that investors are now more confident about the US economy and are willing to buy more dollars and dollar based assets thus making the dollar rise.
The sustainability of the dollar's gain will all depend on the sustained performance of the US economy as well as developments in the Euro zone. A sagging Euro zone could impact demand for exports from the US and result in a slow down in the US as well due to which the US dollar could take a beating.
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