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Dollar gains as jobless claims affirm resilient US labor market

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Dollar gains as jobless claims affirm resilient US labor market
© Reuters. FILE PHOTO: U.S. Dollar and Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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 drifts lower; euro edges higher ahead of key wages data

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Dollar drifts lower; euro edges higher ahead of key wages data
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Investing.com – The U.S. dollar slipped lower in early European trade Tuesday, but remains close to recent highs given the prospects of higher-for-longer U.S. interest rates, while the euro faces a wages test later in the session.

At 04:45 ET (09:45 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 104.082. 

Dollar quiet ahead of Fed minutes

The greenback has edged lower Tuesday with U.S. traders set to return after Monday’s Presidents’ Day holiday, but remained close to three-month highs amid mounting expectations that the Federal Reserve will delay the start of its rate-cutting cycle to the start of the summer compared with the expected March at the beginning of the year.

Data released last week showed both U.S. and increased more than expected in January, while Fed official Mary Daly stated on Friday that there is still “more work to do” to bring inflation back down to the U.S. central bank’s 2% target.

The U.S. economic data calendar is largely empty Tuesday, likely resulting in quiet trading ahead of the release of the of the Fed meeting from last month, scheduled for Wednesday. 

“The view that the U.S. data will turn at some point, the Federal Reserve will cut, and the dollar will decline remains a consensus one (and often translates into selling USD rallies),” said analysts at ING, in a note. 

“We favor a strong dollar in the near term as U.S. data remains supportive, but this looks increasingly to be the perfect recipe for range-bound trading.”

Euro awaits ECB wage data

In Europe, traded 0.2% higher at 1.0795, helped data showing the eurozone’s current account in a larger than expected surplus in December, pointing to economic recovery.

Traders are now keenly awaiting the release of regional fourth-quarter negotiated wages data, due later in the session, given the importance Europe’s central bank has placed on wage growth as it attempts to contain inflation.

“This wage indicator had been on a steady rise since mid-2022, and a decline, even if contained, should be welcomed by the ECB,” ING added.

traded 0.1% higher at 1.2605, in quiet trading ahead of the release of the monthly surveys of business activity later this week.

The data is expected to show that British business activity is improving, led by a surge in service-sector activity to its fastest pace since last May.

This follows Friday’s data which showed U.K. grew at their fastest pace in nearly three years in January.

China cuts key rate, yen remains weak

In Asia, traded largely unchanged at 7.1983, helped by a strong daily midpoint fix after the People’s Bank of China cut its benchmark five-year loan prime rate by a bigger-than-expected 25 basis points to 3.95%, a record low. 

The move provided little cheer to Asian markets as it also underscored increasing government anxiety over an economic slowdown in Asia’s biggest economy.

rose 0.1% to 150.31, with the yen weakening past the 150 level as the prospect of a slow exit from the Bank of Japan’s ultra-dovish monetary stance put pressure on the Japanese currency.

Breaks above 150 have attracted government intervention in the past, with officials also offering verbal warnings on any such moves last week.

 

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Investors are buying back into the pound’s pizazz

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Investors are buying back into the pound's pizazz
© Reuters. FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

By Amanda Cooper

LONDON (Reuters) – The pound is playing catch-up with the dollar as investors beef up their bullish positions, and may get extra oomph from data this week showing British business activity is among the strongest in the developed world.

Monthly surveys of business activity this week are expected to show the UK topped the league table in February, well ahead of the euro zone and beating even the United States, which in the last year has been one of the few major countries not to have shown a dip into contraction.

This so-called “U.S. exceptionalism” has kept the dollar buoyant and investor confidence in a soft landing for the U.S. economy running high.

Economists polled by Reuters expect an index of British business activity to have risen to 52.7 in early February, led by a surge in service-sector activity to its fastest pace since last May.

Sterling is down just 0.9% against the dollar so far in 2024, having clawed back up from a 1.5% year-to-date loss two weeks ago.

Just four months ago, the International Monetary Fund declared Britain would be the slowest-growing economy among the Group of Seven nations in 2024.

A lot has changed since then, not least Germany tilting into actual recession and France barely growing. Data last week showed the UK, too, registered two straight quarters of negative growth last year.

The euro has fallen to its weakest in six months against sterling, having lost around 2% in value against its cross-Channel rival since the start of the year.

For the past few months, investors have enjoyed the pound’s higher yield that has derived from the view that, even though the economy is sluggish, persistent inflation will mean the Bank of England will have to keep interest rates higher for longer.

Weekly data from the Commodity Futures Trading Commission (CFTC) shows speculators lifted their bullish sterling position to $3.971 billion in the week to Feb 13, just shy of last July’s nine-year high.

Leveraged funds, which include hedge funds and money managers, have aggressively added to their long sterling positions since early December, and now hold their largest bet on a pound rally since October.

Aside from the pound’s yield appeal, investors may be taking heart finally from the data too.

JPMorgan nudged up its 2024 UK growth forecast in January, while Deutsche Bank last week said it had made a modest upward tweak to its quarterly growth estimates.

Bank of America has turned bullish on sterling and last week boosted its year-end target for the pound to $1.37 – some 8.5% above where it is trading right now.

In a note last week, ING issued a reminder not to “get carried away” by signs of green shoots in the economy – the BoE is focussed on services and wage inflation right now – but acknowledged that the outlook for Britain’s economy is starting to brighten.

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Asia FX creeps lower, dollar firm as China rate cut gives little support

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Asia FX creeps lower, dollar firm as China rate cut gives little support
© Reuters.

Investing.com– Most Asian currencies crept lower on Tuesday amid persistent concerns over a slowing Chinese economic recovery and higher-for-longer U.S. interest rates, while the dollar edged up and remained near three-month highs.

The People’s Bank of China cut its benchmark five-year by a bigger-than-expected 25 basis points to 3.95%, a record low. But the move provided little cheer to Asian markets, given that it also underscored increasing government anxiety over an economic slowdown in Asia’s biggest economy.

The fell slightly after the move, although bigger losses in the currency were held back by a stronger-than-expected midpoint fix from the PBOC. 

Still, the yuan remained close to its weakest level in three months, and was also close to  breaking above the 7.2 level to the dollar. 

Broader Asian currencies were still reeling from a string of stronger-than-expected U.S. inflation readings from last week, which put the dollar within sight of a three-month high. But the greenback saw few cues for movement from a U.S. holiday on Monday.

The and both rose 0.1% each in Asian trade, buoyed by the prospect of higher-for-longer U.S. interest rates in 2024. 

The was among the worst-hit by recent fears of higher U.S. rates, with the currency weakening past the 150 level on Tuesday. The prospect of a slow exit from the Bank of Japan’s ultra-dovish monetary stance also put pressure on the yen.

Still, the yen found some support around 150 as traders watched for any potential intervention in currency markets by the Japanese government. Breaks above 150 have attracted government intervention in the past, with officials also offering verbal warnings on any such moves last week.

The fell 0.1%, even as the showed the bank still remained inclined towards hiking interest rates further to curb sticky inflation.

But the RBA also said that it was prepared to loosen monetary conditions swiftly if the Australian economy cooled too quickly due to pressure from high rates. 

The RBA had kept rates steady at 4.35% earlier in February, but had struck an unexpectedly hawkish tone- which offered some support to the Aussie. 

Among other Asian currencies, the fell 0.1%, while the fell 0.3%.

The firmed slightly below the 83 level, but still remained vulnerable.

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