03/11/2023 

US dollar update

USD dollar Summary

In October, the United States saw a modest increase of 150K in Nonfarm Payrolls, as reported by the US Bureau of Labor Statistics, earlier today. This figure fell short of market expectations, which had anticipated a higher number at 180K. During the same period, the unemployment rate saw a slight uptick, rising from 3.8% to 3.9%. Additionally, the annual wage inflation, as indicated by the change in average hourly earnings, showed a softening trend, dropping from 4.3% to 4.1%. Just after the announcements, the US dollar had strong bearish trends, currently at 105.13 with weekly losses of 1.17%.

On Wednesday, the Fed announced the interest rates decision and released the monetary policy statement. As expected, the interest rates remained unchanged at 5.25% – 5.50%. According to the monetary policy statement, there was strong economic growth in the third quarter, despite slightly moderating job gains. Inflation remains high, and the U.S. banking system is stable. However, tighter financial conditions for households and businesses may impact economic activity, hiring, and inflation, although the extent of these effects is uncertain.  The Committee aims to achieve maximum employment and 2% inflation in the long run. They will continue to assess incoming information’s implications for monetary policy. The Committee will also consider factors like labor market conditions, inflation pressures, and financial and international developments when determining monetary policy.

Market Views & Opinions

According to Andrew Hunter, deputy chief U.S. economist, at Capital Economics, “The strongest argument for the Fed to abandon its tightening bias is that wage growth continues to slow. Overall, we suspect the softening in labor market conditions has much further to run and still expect the Fed to be cutting interest rates again in the first half of next year.”

The key points of ING today’s article are:

• “The dollar opens November close to the highs of the year. Normally, November and December are soft months for the dollar. This year, however, it is hard to see the dollar giving back its gains before year-end”
• “We are also cognizant of the risk that Fed easing does not always deliver a higher EUR/USD. For example, the Fed cut rates nearly 500bp in 2001 and EUR/USD went nowhere. Our forecast for a eurozone recession, a difficult return of the Stability and Growth Pact, and the ongoing threat of a geopolitical spike in oil prices present downside risks to our view of a Fed-driven rise in EUR/USD to 1.10 next summer and 1.15 by year-end 2024.”

IMPORTANT DISCLAIMER

The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.

a-Quant is not responsible for your actions and recommends you contact a licensed financial advisor before acting on any information contained in this general information report.