The Rise of the U.S. Dollar Amidst Jobs Report
By Gertrude Chavez-Dreyfuss
The U.S. dollar saw a surge on Friday, rebounding from earlier losses triggered by a jobs report that revealed higher unemployment rates and moderate job gains. This movement in the dollar comes ahead of an upcoming inflation report next week that could potentially confirm or undermine expectations of interest rate cuts later this month.
Euro and Yen Exchange Rates
- The greenback recovered from a three-week low against the Euro, trading down 0.3% at $1.0561.
- The European common currency is set to end the week 0.2% lower, experiencing losses in four of the last five weeks.
- Against the yen, the dollar saw an increase from session lows to trade relatively unchanged at 150 yen.
- The U.S. dollar is expected to close the week with a 0.2% gain against the Japanese unit, showing an increase in three of the last four weeks.
Market Analysis
Mark McCormick, head of foreign exchange and emerging market strategy at TD Securities, described the jobs report as "noisy," but noted that it was soft enough to prompt a positioning adjustment across FX. The market’s reaction indicates an expectation for another Fed cut this month.
McCormick emphasized the importance of next week’s CPI report, mentioning that it will provide crucial data for the December Fed meeting. Despite this, he believes that the U.S. dollar is likely to demonstrate weakness, presenting an excellent opportunity to buy the dip in early 2025.
Jobless Rate and Payrolls
- The unemployment rate inched higher to 4.2%, following two months at 4.1%.
- Nonfarm payrolls expanded by 227,000 jobs last month, falling short of economists’ expectations.
- Average monthly job gains over the last four reports are slightly below the needed level to match a growing population.
Consumer Sentiment and Rate Futures
- The University of Michigan Surveys for December showed an increase in consumer sentiment, while one-year inflation expectations rose to 2.9%.
- U.S. rate futures now indicate an 85% chance of a 25 basis point interest rate cut at the upcoming policy meeting, up from 70% before the data release.
- James Knightley, chief international economist at ING, predicts a 25-bp cut by the Fed, with a potential slowing in the pace of cuts in the near future.
Global Impact
- In Asia, the dollar rose against South Korea’s won amid reports of potential martial law declarations.
- The dollar remained steady against the Chinese yuan, reflecting concerns over new tariffs proposed by U.S. President-elect Donald Trump.
The continuous fluctuations in the U.S. dollar and global currencies emphasize the significance of economic data releases and central bank decisions in shaping financial markets worldwide. As investors, consumers, and businesses, it is important to stay informed about these developments to make informed decisions about financial planning and investments.