On Thursday, the US dollar saw an increase against most currencies in volatile trading, supported by robust U.S. labor market data that tempered expectations of multiple interest rate cuts by the Federal Reserve in the coming year.
The outlook on Fed policy easing may be influenced by the upcoming nonfarm payrolls report scheduled for Friday. According to a Reuters poll of economists, it is anticipated that 170,000 jobs were added in December, a decrease from the 199,000 recorded in the previous month.
The U.S. dollar strengthened following reports that private employers in the country hired more workers than anticipated in December. The ADP National Employment Report revealed a gain of 164,000 jobs in the private sector last month, marking the most significant monthly increase since August. Economists surveyed by Reuters had predicted an increase of 115,000 in private payrolls.
Additionally, the dollar received support as initial claims for state unemployment benefits declined by 18,000 to a seasonally adjusted 202,000 for the week ending December 30. This figure surpassed the expectations of economists polled by Reuters, who had projected 216,000 claims for the same week.
Amo Sahota, the director at FX consulting firm Klarity FX in San Francisco, remarked that the recent data suggests a robust position for the U.S. economy. This development is prompting a reassessment of market expectations for the Federal Reserve’s actions early in the year.
In response to Thursday’s economic reports, expectations for the number of interest rate cuts in 2024 were scaled back in U.S. interest rate futures. The projections now indicate four 25-basis-point decreases, down from around six as of late Wednesday, according to LSEG’s interest rate probability app.
The minutes from the Federal Reserve’s December 12-13 policy meeting, released on Wednesday, were perceived as moderately hawkish by market participants. Federal Reserve officials emphasized the appropriateness of maintaining a restrictive stance on policy until inflation showed sustained movement towards the committee’s objectives.
Amo Sahota noted that if there were indications of a severe economic downturn, there might be increased expectations for an early interest rate cut. However, based on current data, the Fed does not anticipate a hard landing, and the overall economic outlook appears favorable.
In the realm of cryptocurrencies, bitcoin experienced a 3% gain, reaching $44,157. Investors are anticipating potential approval from the U.S. Securities and Exchange Commission for the first spot bitcoin exchange-traded fund in the coming week.
In afternoon trading, the dollar index saw a slight increase to 102.44, following its rise to two-week highs on Wednesday.
Against the yen, the dollar reached its own two-week peaks, marking a three-day ascent. Currently, the dollar is up by 0.9% at 144.52 yen.
However, Thierry Albert Wizman, the global FX and rates strategist at Macquarie in New York, remains skeptical about the sustainability of dollar gains since the start of the year, despite a pullback in rate cut expectations.
Wizman expressed his belief that the U.S. economy will experience a slowdown, primarily driven by a decline in consumer activity. He anticipates a convergence in growth rates between the U.S. and the rest of the world throughout the year, leading to some weakening of the dollar relative to the euro, sterling, and the yen in the first six months of the year.
In regard to other currencies, the euro saw a 0.2% increase against the dollar, reaching $1.0948, following data indicating higher inflation in Europe.
Preliminary data from the French national statistics body revealed that consumer prices in France rose in December as expected, with increases in energy and services prices over the year. Meanwhile, in Germany, Consumer Price Index (CPI) inflation rose to 3.7% in December, meeting expectations and surpassing the 3.2% recorded a month earlier.
The British pound strengthened against the dollar after data revealed an increased demand for loans by British borrowers, and business services exhibited greater resilience than anticipated in the UK. November’s net borrowing in the UK reached its highest point in nearly seven years.
A separate business survey, the UK Services Purchasing Managers’ Index (PM), indicated that the growth of Britain’s services firms in December was stronger than initially estimated, with optimism reaching a seven-month high.
As a result, the pound saw a 0.2% increase, reaching $1.2680. Following the data release, it surged by as much as 0.5% to $1.2728.
According to Reuters
By. Pham Thanh Bien
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