Fed Fears Fade: Dollar Flexes Muscles as Rate Cut Bets Shrug Off

5 Jan 2024 , 08:59 AM

Ahead of the highly anticipated U.S. payrolls report later in the day, the dollar remained stable on Friday and was poised for its best weekly performance since July as expectations of sharp and early interest rate reduction this year were tempered. 

According to data released on Thursday, private firms in the United States employed more workers in December than anticipated, indicating ongoing strength in the labour market that should support the economy. Due to this, the dollar was able to withstand losses and ended Friday morning’s early trading at 102.39 against a basket of currencies.

This week’s 1% gain in the dollar index is the most since the week ending July 23. The nonfarm payrolls report, which is expected later in the afternoon, will put the dollar’s recovery to the test. According to Reuters polling of economists, there were 170,000 fewer jobs created in December than there were in November (199,000).

The CME FedWatch tool indicated that traders have reduced their bets on rate cuts, with markets now pricing in a 65% possibility of one in March as opposed to an 86% chance one week ago. Additionally, compared to 160 basis points at the end of December, they are pricing in fewer than 140 basis points of cuts this year.

According to the personal consumption expenditures price index, inflation increased by 2.6% during the course of the year ending in November. The Japanese yen has lost a significant amount of value this week due to the dollar’s rise; it is already down 2.5% versus the US dollar and is expected to have its worst weekly performance since June. The yen fell 0.06% against the dollar on Friday, after hitting a two-week low of 144.90 earlier in the day.

The euro ended a three-week winning streak with a 0.09% gain at $1.0953, on pace for a 0.8% weekly fall. The most recent price of sterling was $1.2694, up 0.12% for the day but still headed for a slight weekly loss. The price of bitcoin fell 0.91% to $44,082.61 among cryptocurrencies. Ether dropped to $2,263.75, down 0.53%.

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