Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Dollar flat after mixed US data, on pace for best weekly gain since July

Published 01/04/2024, 09:00 PM
Updated 01/05/2024, 04:11 PM
© Reuters. FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo
EUR/USD
-
USD/JPY
-
DXY
-

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The dollar was little changed on Friday after a rally in response to mixed data that suggested the world's largest economy showed pockets of weakness but remained resilient overall.

The dollar index was flat at 102.43 in afternoon trading after hitting 103.10 in wake of the stronger-than-expected U.S. jobs report. That was the highest since mid-December.

For the week, the dollar gained 1.1%, on pace for its best weekly rise since mid-July.

The greenback earlier rallied after data showed the U.S. economy created 216,000 new jobs in December, exceeding the consensus forecast of 170,000. The unemployment rate was steady from November at 3.7%, compared with expectations of a rise to 3.8%, while average earnings rose 0.4% on a monthly basis, against forecasts of a 0.3% gain.

But that report was offset by data later in the session that indicated the U.S. services sector slumped last month.

The Institute for Supply Management (ISM) said its non-manufacturing index fell to 50.6 last month, the lowest reading since May, from 52.7 in November. The services industry accounts for more than two-thirds of the economy. Economists polled by Reuters had forecast the index little changed at 52.6.

More importantly, the ISM's measure of services sector employment plunged to 43.3 last month, the lowest since July 2020 when the economy was reeling from the first wave of the pandemic. The index was at 50.7 in November.

The dollar fell after the ISM report, dropping to session lows below 102. The U.S. currency subsequently trimmed losses.

"At the end of the day, this is about market positioning," said Marc Chandler, chief market strategist at Bannockburn Forex in New York.

"I see big outside days in the dollar index and I see net little changed on the day. The market lacks conviction and we should expect some broad consolidation maybe within today's range for the next few days."

Post-data, U.S. rate futures have priced in about five rate cuts of 25 basis points (bps) each for 2024, with the year-end fed funds rate expected at roughly 4% compared with the current level of 5.25%, according to LSEG's rate probability app. Early this week, the market had factored in six rate declines.

U.S. rate futures traders have also factored in easing bets at the March Fed meeting to around 66%, largely unchanged from the odds seen over the last week.

Analysts said the jobs report suggested that the Federal Reserve would probably be in no rush to cut interest rates over the next few months. In the end, the futures market would likely come around closer to the Fed's forecast of about 75 bps of rate cuts in 2024, they noted.

"Overall, I think the market is a bit ahead of itself here...I call March about a 50/50 meeting, and I wonder if we don't stick around there for a little while as the data rolls in," said Adam Button, chief currency analyst at ForexLive in Toronto.

"Inflation numbers will look really good by about June, but asking for that in March is aggressive. If the numbers start to turn I think the Fed isn’t going to hesitate, I think they've indicated that now, but this one jobs report - is this a game changer or not? I don’t think it's a game changer."

The market also shrugged off data showing U.S. factory orders increased more than expected in November, rising 2.6% after declining 3.4% in October.

© Reuters. FILE PHOTO: A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration/File Photo

In other currencies, the dollar was slightly higher against the yen at 144.655 . It rose as high as 145.98 yen, a three-week peak, after the payrolls data. On the week, the greenback advanced 2.2% versus the Japanese currency, on track for its best weekly performance since June 2022.

The euro, on the other hand, inched lower versus the dollar to $1.09405. Europe's common currency fell 0.9% on the week, its largest weekly drop since early December and snapping a run of three weeks of increases.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.