US Dollar at Six-Week Low Amid Soft Jobs Data

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US Dollar Faces Significant Decline

The US dollar has experienced a sharp decline, reaching a six-week low, following the release of underwhelming job creation data. This development has solidified expectations that the Federal Reserve will refrain from raising interest rates during its upcoming December meeting. The dollar index, which assesses the greenback’s strength against six major global currencies, recorded a 1.1% drop to 105.03. It had earlier plummeted to 104.93, its lowest level since September 20. The index is on track for its most substantial single-day decline since July.

For the week, the US dollar saw a 1.4% decline, marking its worst weekly performance since July. The job data revealed that nonfarm payrolls increased by 150,000 jobs the previous month. Additionally, the revised figures for September showed a decrease to 297,000 jobs created, down from the previously reported 336,000.

Federal Reserve’s Likely Response

Economists and market strategists suggest that these job figures reinforce the belief that the Federal Reserve will avoid increasing interest rates. They argue that the new job figures, although slightly below expectations, still demonstrate robust job creation in line with population growth and steady unemployment rates. Market observers have described this situation as a “Goldilocks number” for the economy.

The decline in the US dollar has been mirrored by a drop in US Treasury yields. The benchmark 10-year US yield reached a five-week low of 4.484%, with a retreat of over 30 basis points, marking the most significant decrease since March 2020. This week’s decline is due to a combination of the US Treasury Department’s announcement of smaller-than-expected increases in longer-dated Treasury supply and Federal Reserve Chair Jerome Powell’s apparent shift to a less hawkish stance during a press conference after the Fed’s recent meeting. Although Powell left open the possibility of further increases in borrowing costs, the markets are currently pricing in less than a 5% chance of a rate hike in December.

Impact on Other Currencies

The weakening US dollar has had a ripple effect on other currencies. The euro has risen by 1.1% and is on track for a weekly increase of 1.6%, marking its most significant rise in four months. Sterling also rose by 1.5% against the dollar, reaching a six-week high. This marks the British pound’s most robust daily performance since January, and it is set for a weekly gain of 2.4%, the most substantial since November 2022.

Services Sector and Other Economic Indicators

In addition to the job data, the US services sector slowed for a second consecutive month, according to the Institute for Supply Management (ISM). The non-manufacturing Purchasing Managers’ Index (PMI) reached a five-month low of 51.8, down from September’s 53.6. This decline in services PMI has been observed since August when it reached a six-month high.

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