The Dollar Index made a ten-month low Thursday and then rallied sharply Friday after the January jobs report stated the US added 517,000 jobs. The market expected only 185,000 new jobs. For any economy to add three times more jobs than expected in one month is blockbuster good news. Demand for goods and services will explode!
But, not in the USA... The current managers of the United States monetary policy manage the economy by adding money to the money supply to stimulate economic growth. If they add too much money in too short a time, inflation becomes a problem. In which case, the Federal Reserve chokes the economy with a tighter money supply, which means higher interest rates. They believe it is impossible to have a growing economy without inflation. So, they try to find that happy median where the inflation rate is tolerable (2%) and economic growth expands modestly (1 to 3%). If the economy shows too much strength, as it did with yesterday’s employment report, the expectation is the Federal Reserve will tighten the money supply faster and more than was expected before the report. Therefore, good news is bad news and bad news is good news.