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Leveraging Initial Jobless Claims

2019-3-1 18:26 | By : Ma, Jackie

You may be aware that each week the US government releases an Initial Jobless Claims report, in which it lists the number of new people who’ve claimed for state unemployment insurance that week. So how does that affect the US dollar exchange rate, and how can it help you?

Initial Jobless Claims and The US Dollar

The Initial Jobless Claims report affects the US dollar in the following way. If the number of new claims is beneath that forecast, the US dollar tends to weaken. If the number of new claims is more than predicted, the US dollar will strengthen.It happens because the US dollar is affected by economic data inverse to other currencies. So while falling unemployment in the UK might benefit the pound, it’s likely to impede the US dollar.

Given this, when things go well, investors have the confidence to put their money in funds that are both more risky, but also deliver higher returns. Hence, if fewer people are unemployed in the United States, the markets have more confidence, and so put their money in places besides the US.

How This Affects You

If you want to buy US dollars, then fewer Initial Jobless Claims than forecast would be to your benefit. This is because, with fewer claims, the US dollar will weaken, meaning you can buy more of them when you exchange your UK pounds or other currencies. That means emigrating to the US is cheaper, as well as importing US goods back home.

If on the other hand you want to sell US dollars to buy another currency, you want to look out for more Initial Jobless Claims than forecast. As I’ve explained, this will signal that the global economy is in worse shape than predicted, prompting the US dollar will gain. That makes it stronger, meaning you can buy more UK pounds or euros for the same amount.

Strengths of the Initial Jobless Claims Report:

         Weekly reporting provides for timely, almost real-time snapshots

         As a tightly-presented release, investors can easily pick up the raw release and quickly apply the information to market decisions

         Initial claims are provided gross and net of seasonal adjustments, and give a breakdown for every state's individual results

         Some states' figures are shown along with a comment from that state's reporting agency regarding specific industries in which noteworthy activity is happening, such as "fewer layoffs in the industrial machinery industry."

Weaknesses of the Initial Jobless Claims Report:

Summer and other seasonal employment tends to skew the results

Highly volatile—revisions to advance report can be very big on a percentage basis

Jobless claims in isolation tell little about the overall state of the economy

No industry breakdowns are provided, just the national figure

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