- The US Dollar Index holds below 108.00 as mixed economic indicators raise concerns ahead of Friday’s employment report.
- ADP reports a stronger-than-expected increase in private sector employment for January, while Initial Jobless Claims also rise.
- Investors anticipate the upcoming Nonfarm Payrolls data to gauge the Federal Reserve’s future monetary policy decisions.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of currencies, struggles to hold its recent gains, trading below 108.00 on Thursday. Mixed United States (US) economic data fuels uncertainty ahead of the January employment report due on Friday. Investors remain cautious as labor market signals provide conflicting outlooks, with ADP data showing strength while jobless claims rise.
Daily digest market movers: US Dollar index remains soft after mixed data
- ADP reports a stronger-than-expected private sector job increase of 183,000 in January, exceeding the 150,000 consensus.
- On Thursday, Initial jobless claims rise to 219,000, surpassing expectations of 213,000 and up from last week’s 208,000, signaling potential labor market softening.
- Continuing jobless claims increase to 1.886 million, above the forecast of 1.87 million and last week’s 1.858 million.
- Investors now focus on Friday’s Nonfarm Payrolls report, projected to show 170,000 new jobs in January, down from December’s 256,000.
- The CME FedWatch tool shows a nearly 90% probability of the Fed keeping rates steady in March, reinforcing expectations of a prolonged hold. NFP data will dictate the pace of the markets bets.
- Fed’s Austan Gooble was on the wires during Thursday’s session but didn’t provide any relevant insights but noted that the pace of the cuts will be slower. In the meantime, the Fed’s sentiment index remains in hawkish territory above 100 but downwards sloping.
DXY technical outlook: Indicators show growing bearish momentum
The US Dollar Index struggles to maintain recent gains, slipping below the 20-day Simple Moving Average (SMA) at 108.50. The Relative Strength Index (RSI) remains below 50, signaling increasing bearish traction. The DXY now looks poised to test the psychological support level at 107.00, with downside risks growing as mixed economic data clouds the Fed’s hawkish policy outlook.
Employment FAQs
Labor market conditions are a key element in assessing 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 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 because 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 their significance as a gauge of the health of the economy and their direct relationship to inflation.
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