- Data from the United States revealed an increase in the labor force and a slowing of wage growth.
- The probability of a half-point rise in the fed funds rate has gone down to around 25%.
- China’s reopening also helped improve risk sentiment.
Currency futures rose on Monday due to growing expectations that the Federal Reserve may decrease interest rate increases. This put a lot of pressure on the US dollar.
After surging 1.5% on Friday, sterling futures were back on the move on Monday, gaining 0.42% to $1.2143. Following a 1.17% increase on Friday, euro futures were up 0.28% at $1.0674.
Data from the United States revealed an increase in the labor force and a slowing of wage growth. There were also additional indications of a weakening economy, with services industry activity declining in December for the first time in over 2-1/2 years.
According to Moh Siong Sim, currency strategist at the Bank of Singapore, “data on Friday gave markets some hope that maybe the US is slowing down and the Fed does not need to do much more.” “However, it’s still unclear if a soft landing is actually what we’re headed towards,”
Analysts have noted that the tight labor market will likely worry Fed officials and keep them on their hawkish course.
The probability of a half-point rise in the fed funds rate is currently around 25%, down from over 50% a month ago.
The dollar index, which compares the dollar value to six major currencies, dropped 0.145% to 103.570 on Monday after dropping 1.15% on Friday as investors shifted their focus to riskier assets.
China’s decision to reopen its borders and relax most of its strict “zero-COVID” policy, allowing travelers to enter the nation via air, land, and sea, also helped to improve sentiment.
Kiwi futures soared 0.68% to $0.639, the best level in three weeks, while the trade and China-sensitive Australian dollar futures increased 0.80% to $0.693, the highest level since August 30.
Investors will watch the consumer price index data due on Thursday and Fed Chair Jerome Powell’s speech this week closely for clues on the central bank’s next move at the meeting set to start at the beginning of next month.
Although core inflation could rise again in early 2023, Citi said it expected another “softer” core CPI print with modest upside risk.
