USD was up and down like a rollercoaster on Friday, with mixed data points reflecting opposing messages about the job market. Nonfarm payroll numbers, average hourly earnings and the unemployment rate portrayed an image that the US job market was stronger than expected, causing USD to gain and 10-treasury yields to climb to 4.10%. At that point there was a sense that the greenback was going to break out of its November downtrend. Roll forward 1.5 hours and ISM services numbers reflected a different image. The PMI number came in lower than expected, but more concerning was the employment reading in the sector which fell to the lowest since July 2020 – USD gave up all its gains and finished the day lower. Markets gave a 78% probability of the Fed cutting rates in March.
* Daily move - against G10 rates at 7:30am, 08.01.24
** Indicative rates - interbank rates at 7:30am, 08.01.24
Despite the volatility on Friday, USD is already back near Friday’s opening levels as we start the week, indicating the markets indecision in determining rate cut pricing from the Fed this year, following Friday’s contradictory job number. Thursday's inflation number will be in focus this week stateside, with the core number expected to show inflation eased further in December to 3.8%. From the UK this week, focus will fall on BoE Governor Bailey’s parliamentary testimony on Wednesday, as well as GDP numbers for the month of November on Friday.
Overall, major data points are few and far between this week, and until Thursday’s US inflation numbers, expect markets to be dictated by the broader risk environment, thus should equities weaken, this should be USD supportive.
USD has started the year stronger, attempting to claw back the losses suffered going into the end of 2023. Friday saw a jump in volatility on contradictory job numbers and the markets trying to determine Fed rate cut pricing for this year. The net result on the close of Friday still saw USD finish marginally higher, and on a nervous risk environment, USD could well be supported going into Thursday's inflation numbers.
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