Dollar Sets For Biggest Weekly Jump Since May

(CTN News) – The Dollar saw a significant increase on Friday, marking its largest weekly rise since May. This surge occurred as traders adjusted their expectations for early U.S. interest rate cuts in 2020.

Despite the euro zone experiencing rising inflation, the strength of the Dollar overshadowed the potential need for the European Central Bank Dollar to lower interest rates.

The upcoming non-farm payrolls report will be a crucial test for the USD’s rebound. Economists surveyed by Reuters anticipate that 170,000 jobs were created in December, a decrease from the 199,000 in November.

In December, Federal Reserve officials predicted a 75 basis point reduction in interest rates by 2024. However, money markets had higher expectations, leading to a surge in stocks and bonds at the end of the year. Market expectations have since been tempered this year.

Traders are now pricing in less than 140 basis points of cuts for this year, with a 62% chance of a cut in March, down from 86% the previous week, according to the CME FedWatch tool.

Moh Siong Sim, a currency strategist at Bank of Singapore, observed that this week’s data suggests that the U.S. labor market remains strong.

It is possible that the Federal Reserve may need to emphasize the message of maintaining rates for a longer period than what the market has already anticipated.

However, the significance of tonight’s payroll data cannot be underestimated as it will provide crucial insights to monitor.

Inflation in the Euro Zone

The euro has dropped 0.24% against the dollar, reaching $1.0919. This puts it on track for a 1.09% decrease for the week, its biggest drop since December.

Inflation in the 20-nation bloc has risen to 2.9% in December, slightly below expectations but in line with the ECB’s forecast. There is disagreement among investors and policymakers about the number of interest rate cuts expected this year.

Some traders speculate that there will be six rate cuts, while policymakers argue it may take until mid-2024 to control inflation. This data has raised concerns among investors about the possibility of restrictive ECB policies. In other news, the yen has weakened by 0.37% against the dollar, reaching 145.14 yen per dollar.

The 4% threshold was surpassed by the 10-year U.S. Treasury yield, reaching a level of 4.04%. The earthquake in western Japan this week has raised additional uncertainties about a potential change in the Bank of Japan’s ultra-loose monetary policy, causing investors to lower their expectations.

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