Forex

Dollar gains as jobless claims affirm resilient US labor market

Published

12 months ago

February 10, 2024

Dollar gains as jobless claims affirm resilient US labor market

By Herbert Lash and Samuel Indyk

NEW YORK/LONDON (Reuters) -The dollar rose on Thursday after data on unemployment benefits again pointed to a resilient U.S. labor market, reinforcing the Federal Reserve’s message that interest rates are unlikely to be cut in the near term.

The number of Americans filing new claims for unemployment benefits fell more than expected last week, the latest sign of labor market strength despite a recent spike in layoffs.

Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 218,000 for the week ended Feb. 3, the Labor Department said, less than the 220,000 forecast by economists polled by Reuters.

The initial claims data still points to a robust U.S. labor market that has kept the dollar strong, said Thierry Wizman, global FX and interest rates strategist at Macquarie in New York.

“The problem here is that we continue to get positive surprises in the U.S. and we’re not getting enough positive surprises in the rest of the world, and certainly not in China,” he said.

“If the dollar is going to weaken, we’re going to need to see some attenuation of the robustness in the U.S. data and some improvement in the data in Europe and China,” he said. “When’s that going to happen? Very, very hard to say.”

The next major scheduled U.S. data release is January’s Consumer Price Index (CPI) reading of inflation on Feb. 13.

Expectations for U.S. central bank rate cuts by year end have been slashed to 115 basis points (bps) from 140 bps just before the release of last Friday’s blowout jobs report, trading in Fed funds futures show.

The likelihood of a rate cut in March slipped one-half percentage point from Wednesday to 18.5%, but was about half expectations of 36.5% a week ago, according to CME Group’s (NASDAQ:) FedWatch Tool.

The was last up 0.14% at 104.16, after hitting 104.43 following the initial claims report. The euro rebounded from a low of 1.074, gaining 0.02% to $1.0773.

Higher Treasury yields also have bolstered the dollar, particularly against lower-yielding currencies, such as the yen.

The two-year Treasury yield, which reflects interest rate expectations, rose 3.4 basis points to 4.456% and the 10-year yield was up 7 basis points at 4.168%.

The yen was down about 0.82% versus the greenback at 149.380. It slipped to 149.46 after the initial claims data, its weakest level since Nov. 27.

Bank of Japan Deputy Governor Shinichi Uchida said overnight that the central bank was unlikely to raise interest rates aggressively, even after exiting negative interest rates.

Sterling was down 0.11% at $1.2613.

The yuan held steady despite data that showed China’s consumer prices fell at their steepest pace in more than 14 years in January.

CPI fell 0.8% from a year earlier, but rose 0.3% month-on-month. Economists polled by Reuters had forecast a 0.5% fall year-on-year and a 0.4% gain month-on-month.

The offshore Chinese yuan rose 0.05% to $7.2159 per dollar, while the rose 0.03% to $7.1965.

rose 2.73% to $45,396.44, the first time it has risen above $45,000 since Jan. 12.

Forex

Dollar gains on tariffs fears; euro looks to ECB meeting

Published

2 hours ago

January 27, 2025

Forex

Swiss franc and yen surge as DeepSeek AI shakes U.S. tech dominance

Published

2 hours ago

January 27, 2025

Forex

Dollar strength likely to continue near term – UBS

Published

1 day ago

January 26, 2025

Investing.com – The US dollar has been on a tear since its late-September 2024 lows, and UBS thinks this near-term strength is likely to persist in the first half of the new year, with room to overshoot.

At 06:15 ET (11:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.5% lower, but has gained almost 4% over the course of the last year.

Better incoming US data (nonfarm payrolls and purchasing managers’ index)—and with it, US yields moving higher—have provided broad dollar support, analysts at UBS said, in a note.

Economic news elsewhere has been rather mixed, with growth prospects for Europe staying highly subdued. Accelerating growth in China suggests that there is growth outside the US. But with US tariff risks looming large, stronger activity in China is unlikely to shift investor sentiment and stall the USD rally, in our view.

In the near term, there seem to be limited headwinds holding the USD back, the Swiss bank added.

“US exceptionalism has appeared to reassert itself, with US economic data likely to stay strong in the near term and risks to US inflation moving higher again. The latest growth and inflation dynamics have lifted US growth and inflation expectations, which could allow the Fed to stay on hold in 2025.”

At least in the short run markets are likely to think this way, while other key central banks are likely to cut rates further.

The potential for monetary policy divergence is a powerful driver, which leads to trending FX markets and the potential for overshooting exchange rates.

US tariffs are also looming large, weighing on sentiment. The concern on tariffs is that they will have inflationary consequences. Given inflation scarring is still fresh on investors’ minds, it is dominating market narratives.

“That said, we think that a policy rate of 4-4.5% in the US remains restrictive and is a headwind to economic growth and inflation. This is unlikely to change absent hard evidence that productivity is rising in the US, which may happen given developments in AI and associated investment,” the Swiss bank added.

It appears that the market-unfriendly parts of the new Trump agenda (e.g., tariffs, trade tensions, immigration) are easier to implement and more likely to happen before the market-friendly parts (e.g., tax cuts, deregulation).

“We think a negative impact on US growth is not priced at all in the forex market, which cannot be said for the rest of the world, particularly Europe,” UBS said.

“Hence, we still think that 2025 could be a story of two halves—strength in 1H, and partial or full reversal in 2H. The fact that the USD is trading at multi-decade highs in strongly overvalued territory and that investor positioning (like speculative accounts in the futures market) is elevated underpin this narrative.”