Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – The U.S. dollar rose on Friday on early selling on a jobs report pointing to higher unemployment and moderate overall job growth, losing momentum ahead of next week’s inflation report, which could either strengthen or cast doubt on an expected interest rate cut later this month.
The dollar has rebounded from a three-week low against the euro, which was last down 0.3% at $1.0561. The single European currency was set to end the week down 0.2%, having recorded losses in four of the last five weeks.
Against the yen, the dollar strengthened from session lows and reached a price of 150 yen, which changed little. The U.S. currency will end the week up 0.2% against the Japanese unit, having gained in three of the last four weeks.
“A noisy (wages) report, but soft enough to reinforce a positioning correction in the FX market,” Mark McCormick (NYSE:), director of FX and emerging markets strategy at TD Securities, wrote in a research note.
He noted that the U.S. dollar had previously tracked lower Treasury yields, “reflecting the fact that the market sees enough here to expect another Fed cut this month.”
“ Next (LON:) Weekly CPI (Consumer Price Index) is likely to be the last useful data for the December Fed meeting, but we believe the path of least resistance remains in the event of a weakening US dollar, offering an excellent opportunity to ride out the decline in early 2025.” McCormick wrote.
Market participants sold the dollar earlier after data showed the unemployment rate rose to 4.2% after remaining at 4.1% for two months in a row.
The boost in the unemployment rate reflected the weakening of household employment. The smaller and volatile household survey, which is used to calculate the unemployment rate, showed a decline of 355,000 jobs. Household employment also fell in October.
On the other hand, nonfarm payrolls rose by 227,000 last month, up from an upwardly revised 36,000 in October from 12,000. The average monthly job gain over the last four reports is now just under 150,000, down from necessary to provide enough work to meet a growing population, many economists say.
Economists polled by Reuters forecast that employment would boost by 200,000 jobs last month. Estimates ranged from 155,000 to 275,000 jobs.
Bloomberg forecast the creation of 225,000 jobs, and some analysts cited that figure in concluding that wages barely exceeded expectations, suggesting the Fed is unlikely to break the cycle of monetary easing.
Consumer sentiments
The dollar then recovered from losses after December University of Michigan research showed consumer sentiment rose more than forecast while annual inflation expectations rose to 2.9% from 2.6 last month.
In afternoon trading, the dollar, which measures the greenback against six major currencies, rose 0.3% to 106, after falling to a three-week low in the previous session.
The dollar also gained against the Swiss franc, up 0.1% to 0.8786 francs.
After the wage data, U.S. interest rate futures are priced at an 85% probability that the Fed will cut interest rates by 25 basis points at its policy meeting later this month, down from about 70% just before the data was released, LSEG calculations show.
Meanwhile, the chance of a break fell to 15% from 30% before the jobs report was released.
“The Fed will indeed cut rates by 25 basis points just to keep policy out of the restrictive and toward neutral territory,” James Knightley, chief U.S. international economist at ING, wrote in a research note.
“However, they are intended to signal a slowing in the pace of cuts, and a pause at the January FOMC meeting appears likely.”
He noted that the risk to this view is that next week’s core CPI data will be warm. He said the consensus is for a 0.3% hike, but as long as it’s closer to 0.25% instead of 0.349%, Knightley believes the Fed will actually decide to cut rates on December 18.
In Asia, the dollar rose against South Korea’s win after local media reported that the country’s main opposition Democratic Party said lawmakers were on standby following reports of another declaration of martial law.
The won weakened, leaving the dollar up 0.4% at 1,422.7.
Elsewhere, the dollar was little changed but heading for a tenth straight weekly loss on concerns that up-to-date tariffs threatened by US President-elect Donald Trump will boost burdens on China’s struggling economy.
The dollar last changed hands at 7.2843 yuan in the offshore market, up 0.3%.
