US Dollar Gains Strength After Strong Payroll Report

8 Apr 2024 , 09:48 AM

After the large payrolls report last week, investors turned their attention to U.S. inflation data, and the dollar was steady but sluggish in Asian trading on Monday as Treasury rates hit record highs for December.

The key economic indicators for the major world currencies this week will be the European Central Bank (ECB) policy meeting on Thursday and the U.S. consumer price inflation for March on Wednesday.

These come after a week in which traders saw Japanese officials talk about raising the value of their currency, while U.S. services, the highly anticipated employment report on Friday, and several speakers from the Federal Reserve gave conflicting signals about interest rates.

Out of the six currencies in the dollar’s trade-weighted index, the Canadian dollar lost the most, falling by 0.5%. The dollar was only slightly stronger overall.

Chair Jerome Powell and other top officials have called for “patience” while making decisions about when to cut rates in the US due to a tight labour market and slow progress on inflation in the past few months.

For market players looking for proof that the forces driving inflation higher than anticipated at the beginning of the year are slowing down, the consumer price index for March is crucial.

In the meantime, U.S. debt yields have increased. The two-year yield, which measures expectations for changes in interest rates, reached 4.765% at the short end of the curve, the highest level since December 11.

The CME’s FedWatch tool indicated that in response to the jobs data, the U.S. rate futures market lowered the likelihood of a June rate decrease to 50%, from 66% late on Thursday.

The two major funding currencies for carry trades, the Swiss franc and the yen, have seen the largest gains in the value of the dollar this year. Both have decreased this year by about 7% in relation to the dollar.

At $1.0825, the euro was down 0.09%. The Japanese yen fell 0.06% against the US dollar to 151.70 per dollar, and the price of sterling was down 0.17% at $1.2615.

The ECB’s default scenario is to maintain rates this week while bolstering the prospect of a June rate reduction. The ECB has been evasive about more easing, despite growing confidence that inflation is returning to its 2% target.

Prior to a policy meeting on Wednesday, the Reserve Bank of New Zealand, the kiwi was slightly weaker at $0.6010. But in only three weeks, it has dropped 3.5% as investors have gambled that the recent deterioration in economic statistics would make the RBNZ dovish.

According to Westpac analysts, “a less dovish Fed contrasting with a more dovish RBNZ” might cause the currency to drop to its November lows of approximately $0.59.

Following their holidays, Chinese markets reconvene on Thursday and Friday. Expect further depreciation of the yuan and attempts by state banks to steer it higher, as they did the previous week when it hit a four-and-a-half-month low.

The price of Bitcoin increased 2.2% to $69,149.92 the previous time around.

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