Gertrude Chavez-Dreyfuss and Stefano Rebaudo
NEW YORK/MILAN (Reuters) – The U.S. dollar strengthened on Tuesday after economic data showing a broadly stable labor market and a still robust services sector suggested the Federal Reserve was likely to snail-paced the pace of the current cycle of interest rate cuts.
After the US data, the dollar rose to an almost six-month high. It rose 0.4% to 158,195 yen. Earlier in the global session, the dollar hit its highest level since July at 158.425 yen.
Meanwhile, the euro fell 0.1% to $1.0378, extending its decline after the data.
The data showed that U.S. job openings unexpectedly rose in November, although hiring fell during the month. According to the Bureau of Labor Statistics’ JOLTS report, a measure of job demand, job openings increased by 259,000 to 8.098 million by the last day of November.
However, in November, employment fell from 125,000 to 5.269 million. Layoffs did not change much and amounted to 1.765 million.
At the same time, in December the activity of the US service sector accelerated, and the escalate in the price measure of production inputs to a level close to the highest level in two years indicated increased inflation. The Institute for Supply Management’s non-manufacturing purchasing managers’ index (PMI) rose to 54.1 last month from 52.1 in November on robust demand.
“The data strongly supports the Fed pausing this month. It’s quite likely that the Fed will sit back and wait until at least March to make further cuts,” said Helen Give, a currency trader at Monex USA in Washington.
“Recent conversations from Fed officials also confirm this, and the central bank will have to deal with potentially inflationary economic and trade policies also pursued by the Trump administration. The Fed is likely to significantly slow its easing schedule this year, and we don’t see January cuts on the table at all.”
Following this data, the US interest rate futures market is pricing in a 93% chance of a pause in interest rate cuts this month and a 6.9% chance of rate cuts, according to LSEG estimates. Interest rate futures also imply only one 25 basis point rate cut this year.
Investors are also assessing whether President-elect Donald Trump’s tariff policies will match his rhetoric.
Market participants are pricing in a scenario in which widespread tariffs could increase U.S. inflation, potentially limiting the Federal Reserve’s ability to lower interest rates and thus supporting dollar strength.
Now they wonder whether officials are preparing to water down some of Trump’s campaign promises while much uncertainty remains about future moves in U.S. policy.
On Monday, Trump denied a Washington Post report that his advisers were examining tariff plans covering only critical imports.
In late morning trading, the index, which rates the currency against its main rivals, rose 0.2% to 108.48, after falling overnight to 107.74, its weakest since December 30.
On January 2, the index hit a high of 109.58 for the first time since November 2022, largely on expectations that Trump’s promised fiscal stimulus, limited regulation and higher tariffs would spur U.S. economic growth.
“With a number of major policy changes taking place, markets should be prepared for much greater volatility ahead,” said George Saravelos, head of global forex strategy at the firm Deutsche Bank (ETR:).
On tariffs in particular, “there are likely to be many overlapping legislative and executive initiatives, the timing and announcements of which will vary throughout the year,” he added.
Currency
offer
prices on
January 7
15:49
GMT
Description RIC Last US Pct YTD Pct High Low
to Close Change offer Offer
Previous
Session
Dollar 108.49 108.31 0.18% 0.00% 108.59 107.
index 84
Euro/Dollar 1.0363 1.0391 -0.27% 0.09% 1.0434 $1.0
it’s 356
Dollar/Ye 157.91 157.505 0.27% 0.37% 158.405 157.
No. 36
Euro/Yen 163.67 163.74 -0.05% 0.28% 164.54 163.
64
Dollar/Sw 0.9074 0.9045 0.4% 0.07% 0.9096 0.90
it’s the 23rd
Sterling sterling/ 1.2489 1.2522 -0.29% -0.18% $1.2575 $1.2
Dollar 481
Dollar/Katwa 1.4353 1.4333 0.18% -0.15% 1.4366 1.42
nadian 99
Australian/Up to 0.6243 0.6246 -0.03% 0.91% 0.6288 USD 0.6
238
Euro/Swiss 0.9403 0.9399 0.04% 0.11% 0.944 0.93
96
Euro/Christmas 0.8295 0.8296 -0.01% 0.27% 0.8305 0.82
ling 88
New Zealand 0.5644 0.5644 -0.03% 0.83% $0.5693 0.56
Dollar/Up to 39
ll
Dollar/No 11.3352 11.2886 0.41% -0.27% 11.3491 11.2
road 495
Euro/Norway 11.7488 11.7314 0.15% -0.17% 11.761 11.7
it’s 219
Dollar/Sw 11.0946 11.0432 0.47% 0.7% 11.1064 10.9
edition 949
Euro/Sweden 11.4991 11.4748 0.21% 0.28% 11.508 11.4
in 608
