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Fundamental Analysis

Currency Futures Decline as Dollar Steadies Amid Mixed Data

  • The dollar rose nearly 1.1% last week, marking its best weekly rise since mid-July.
  • The US economy added more workers than expected and raised wages in December.
  • Investor focus turns to the upcoming consumer inflation report for December.

On Friday, currency futures dropped as the dollar remained stable following mixed data from the world’s largest economy. Moreover, the dollar gained nearly 1.1% for the week, marking its best weekly rise since mid-July.

The euro weakened slightly against the dollar. This decline ended a three-week streak of increases.

Meanwhile, the pound weakened slightly after rising on data showing a stronger-than-expected December performance for the UK economy. The yen fell to the lowest level in three weeks due to dollar strength. 

US jobs (Source: Bureau of Labor Statistics)

US jobs (Source: Bureau of Labor Statistics)

The US added more jobs in December than markets had expected. Consequently, investors lost confidence that the Fed would cut rates in March. Data revealed that 216,000 more people were employed in December. This figure beat the forecast of an addition of 170,000 jobs. Meanwhile, unemployment was steady at 3.7% when markets had expected an increase to 3.8%.

However, cracks appeared in the employment report, with 71,000 fewer jobs added in October and November than initially reported. Moreover, the unemployment rate remained stable because 676,000 people left the labor force, almost offsetting gains since February. Still, the report suggested the economy avoided a recession in the previous year and will likely continue growing in 2024.

Contrastingly, data later in the session revealed a significant slowdown in the US services sector in December. The Institute for Supply Management reported a decline in its non-manufacturing PMI to 50.6, the lowest since May. This led to futures pricing in about five rate cuts in 2024.

Meanwhile, there was positive news on US factory orders in November. However, the market reaction was subdued. The Commerce Department’s Census Bureau reported a 2.6% increase in factory orders for November, recovering from a 3.4% decline in October. On a year-on-year basis, orders rose by 0.7% in November. The manufacturing sector contributes to 10.3% of the economy. However, it is facing constraints due to high interest rates.

Financial markets initially reduced the chances of a March rate cut to 53%. However, they later increased them to 65% after digesting the mixed data. Focus now turns to the upcoming consumer inflation report for December.