Sensational Jobless Claims Report Sparks Market Sensitivity: USD Rates React
The recent jobless claims figures caused a massive reaction in the markets, highlighting the heightened sensitivity to US macro indicators. Investors viewed the equity selloff and dovish Fed rate expectations as overly pessimistic, eagerly awaiting positive data to boost US Dollar (USD) rates, according to ING’s FX strategist Francesco Pesole.
Analyzing the jobless claims report, Pesole noted that while the decline from 250k to 233k was unexpected, continuing claims actually increased to 1875k. This indicates ongoing challenges for individuals seeking to re-enter the workforce.
Looking ahead, all eyes are on next week’s US core CPI numbers, with even a slight upside surprise set to bolster the USD. An increase in core CPI would likely lead to a USD rally and equity sell-off. Additionally, short-dated UST could face pressure from a hawkish Fed repricing, unlike the initial stock market decline driven by unemployment data.
While today’s data calendar includes non-market-moving NY Fed inflation expectations and the July monthly budget statement, the struggle for two-year USD swap rates to surpass 3.80-3.85% persists. With Fed rate cut expectations remaining around 100bp by year-end, the USD may struggle to align with supportive rate fundamentals, potentially resulting in a drop below 103.0 in DXY.
In summary, the market’s reaction to upcoming core CPI figures could significantly impact USD rates and equity markets. Investors should monitor these developments closely to make informed decisions about their portfolios.