Will the US CPIs help the dollar extend its recovery? - Preview
XM Group | Jan 08, 2024 10:46AM ET
- Dollar’s recovery pauses after NFP and ISM data
- Investors continue to price in aggressive rate cuts by the Fed
- Attention now turns to CPI inflation on Thursday, at 13:30 GMT
- Will the dollar resume its upside trajectory? Friday’s data halt the dollar’s rebound
The dollar entered the new year on a strong footing, but soon after the US jobs data was out, its march north came to a halt. The world’s reserve currency extended its rally at the time the better-than-expected headline numbers were out, but after digging into the details of the report, they abandoned their long dollar positions as the story was not as exciting as they initially thought.
The December payrolls may have well beat the consensus, but the October and November numbers were revised down by a combined 71k. On top of that, although the unemployment rate held steady and did not rise as anticipated, the labor force participation rate slid, which means that fewer unemployed Americans are encouraged to start actively looking for a job.
What pushed the greenback even lower was the ISM non-manufacturing PMI for the same month, which fell to the lowest reading since May. More importantly, the survey’s employment sub-index tumbled from 50.7 to 43.3, the lowest since July 2020, when the globe had to deal with the first wave of the coronavirus pandemic.
Investors still see a decent chance for a March rate cut
All these economic numbers allowed market participants to maintain bets of aggressive rate cuts by the Fed, and a nearly 70% probability that the first quarter-point reduction will be delivered in March, despite the Fed pointing to much fewer reductions through its December dot plot and the minutes of that meeting revealing that most policymakers wanted to keep borrowing costs high “for some time.”
If the setback continues, the bulls may find the 0.6570 zone an attractive entry point for resuming the prevailing near-term uptrend. However, in case the CPI figures miss their forecasts, the correction may come to an end sooner as the bulls become willing to jump into the game at even higher levels.
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