- The US Dollar flattens on Thursday after Fed’s Williams said he sees inflation cooling and interest rates falling.
- Investors see Jobless Claims data come in softer while further comments from Fed officials are expected.
- The US Dollar Index trades flat around 106.50, still looking for support to bounce off from.
The US Dollar (USD) is trading flat on Thursday at around 106.50 when tracked by the DXY US Dollar Index, afterNew York Fed President John Williams said that inflation continues to cool down, opening the door for a further drop in interest rates. The US Dollar has traded broadly sideways in recent days, influenced by swings coming from the war between Russia and Ukraine and, more recently, disappointing earnings from Nvidia.
The US economic calendar features on Thursday the weekly Jobless Claims data and the Philadelphia Fed Manufacturing Survey for November came in under expectations. In the Jobless Claims the Continuing Claims part is starting to near the 2 million head count. Meanwhile the Philadelphia Manufacturing number for November fell in contraction, and adds weight to the call for a rate cut in December.
Daily digest market movers: US data keeps easing and deteriorating
- New York Fed President John Willams delivered some dovish comments.Williams said that inflation is heading lower and interest rates should fall further.
- Fed’s Williams meanwhile received additional support from Richmond Fed President Tom Barkin who said in an interview on Thursday with the Financial Times that inflation will continue to drop, Bloomberg reports.
- On the geopolitical front, Ukraine reports that Russia has launched a ballistic missile, Bloomberg reports.
- At 13:30 GMT, the Weekly Jobless Claims for the week ending November 15 came in at 213,000, lower than the expected 220,000. Main concern though is the surge in Continuing Claims where the head count is jumping to 1.908 million people against 1.872 million last week.
- The Philadelphia Fed Manufacturing Survey for November tumbled lower into contraction by -5.5, substantially lower than the positive 8 and 10.3 seen previously.
- Existing Home Sales data for October are due at 15:00 GMT. Economists expect sales to jump higher to 3.93 million from 3.84 million in September.
- A batch of Fed speakers are due this Thursday:
- Near 13:45 GMT, Federal Reserve Bank of Cleveland President Beth Hammack delivers welcome remarks at the 2024 Financial Stability Conference organized by the Cleveland Fed. Hammack will speak again at 17:30 GMT at the same event.
- At 17:25 GMT, Federal Reserve Bank of Chicago President Austan Goolsbee participates in a moderated Q&A session at an event organized by the Central Indiana Corporate Partnership in Indianapolis.
- Federal Reserve Bank of Kansas City President Jeffrey Schmid delivers a speech about economic growth and monetary policy at an event organized by the Fairfax Industrial Association in Kansas City at 17:40 GMT.
- Federal Reserve Vice Chair for Supervision Michael Barr closes off at 21:40 GMT, participating in a discussion about banks and artificial intelligence at the 2024 FinRegLab AI Symposium in Washington DC.
- Equities are starting to turn positive in the outlook that a December rate cut might still take place. Meanwhile Nvidia has recovered from its depressed performance Wednesday and sees all US equities heading into the green.
- The CME FedWatch Tool is pricing in another 25 basis points (bps) rate cut by the Fed at the December 18 meeting by 55.5%. A 44.5% chance is for rates to remain unchanged. While the interest-rate cut scenario is still the most probable, traders have significantly pared back some of the rate-cut bets compared with a week ago, when a rate-cut possibility was still at 72%.
- The US 10-year benchmark rate trades at 4.39%, sliding further away from the high printed on Friday at 4.50%.
US Dollar Index Technical Analysis: Difficult to pick a direction
The US Dollar Index (DXY) is supported by the constant safe-haven inflow on the geopolitical tensions escalating between Russia and Ukraine. Traders should keep in mind that if the recent escalation eases and both parties head into any kind of ceasefire talks, the Greenback could retreat.
After a brief test and a firm rejection last Thursday, the 107.00 round level remains in play on the topside. A fresh yearly high has already been reached at 107.07, which is the statistical level to beat. Further up, a fresh two-year high could be reached if 107.35 is broken.
The first level on the downside is 105.93, the closing from November 12. A touch lower, the pivotal 105.53 (April 11 high) should avoid any downturns towards 104.00. Should the DXY fall all the way towards 104.00, the big figure and the 200-day Simple Moving Average at 103.95 should catch any falling knive formation.
US Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
