Dollar poised for plunge as key jobs data looms

2 Feb 2024 , 11:21 AM

Following impressive huge tech profits on Wall Street, the dollar saw broad declines on Friday as traders anticipated U.S. jobs data that was expected later in the day to determine when the Federal Reserve could start reducing rates.

Following the Fed’s most recent policy meeting, where rates were held unchanged as anticipated but Chair Jerome Powell resisted market expectations of rate cuts in March, comes the highly anticipated nonfarm payrolls report later on Friday.

The US dollar fell vs a group of currencies before to the announcement, continuing a 0.5% decline from the previous trading day.

At its most recent value of 103.02, the dollar index was headed for its first weekly loss of the year.

The Australian dollar gained 0.17% to close at $0.6583, aided by the risk-on sentiment. However, the currency was only expected to finish the week roughly 0.2% higher due to a significant slowing in domestic inflation.

The New Zealand dollar saw a 0.07% increase to $0.6149, putting it on course for its largest weekly gain in more than a month.

The CME FedWatch tool indicates that market pricing currently projects a 38% possibility of a Fed cut in March, down from almost 70% a month earlier. May’s cut is almost completely priced in.

Nevertheless, Treasury yields have declined due to the possibility of lower US interest rates. The two-year yield, which usually indicates predictions for short-term interest rates, was recently at 4.2086%. This week, it has dropped by about 15 basis points.

The benchmark 10-year yield was last at 3.8840%, down roughly 30 basis points for the week.

This week, analysts say, there was also a flight into safe-haven Treasuries due to rekindled concerns about regional U.S. banks. The relationship between bond yields and prices is inverse. 

The yen increased 0.1% vs other currencies to close at 146.29 per dollar. It was on track for its highest week in more than a month, with a weekly rise of around 1.3%.

This week’s summary of views from the Bank of Japan’s (BOJ) January meeting revealed that officials talked about the possibility of a short-term departure from negative interest rates as well as potential timelines for the bank’s extensive stimulus programme to be phased down.

That underscored an increasingly prevalent belief across the board that the circumstances were aligning to swiftly remove the negative term-rate from the market, signifying Japan’s first rate increase since 2007.

Sterling increased 0.09% to $1.2754 elsewhere.

The Bank of England (BoE) on Thursday maintained interest rates at a level that is over 16 years higher than before, but it hinted that they might be lowered if inflation declines.

With a 0.07% increase to $1.0879, the euro was aiming for a weekly gain of more than 0.25%.

The European Central Bank’s case that rate reduction shouldn’t be rushed is likely strengthened by data released on Thursday, which showed that while inflation in the euro zone decreased last month as anticipated, underlying price pressures decreased less than anticipated.

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