The dollar fell sharply in the last session of the week after the US released data on the labor market and the service sector. On the contrary, other major currencies and gold recovered strongly.
The dollar fell sharply on Friday (January 6) after US jobs data showed the labor market remained strong, although the number of new jobs in December did not increase by too much, while a report Another showed that US service industry activity in December declined for the first time in more than two and a half years.
US employers added 223,000 jobs in December, more than economists’ forecasts of 200,000. Wages of employees in December increased by 0.3%, lower than November’s 0.4% and lower than forecast (forecast is also 0.4%). That reduced annual wage growth to 4.6% in December, compared with 4.8% in November.
“There’s a bit of concern about the jobs growth numbers,” said Mazen Issa, senior forex strategist at TD Securities in New York in December.
Strategist Issa added that easing wage growth was also “encouraging”, although he noted the data showed that the US Federal Reserve (Fed) could be quite comfortable with its intention to continue interest rate increase.
“You’ve seen the unemployment rate drop, which is not expected, and the labor market participation rate up,” “These numbers don’t help anyone in determining whether the Fed has should raise rates 25 or 50 at the next meeting or not,” Mr. Issa said.
The Dollar index – which compares the USD against a basket of major partner currencies – ended the session with a sharp 1.17% drop to 103.88, although it had previously reached 105.63, its highest level since from December 7th.
The euro rose 1.19% (the strongest gain since 11/11) to $1.0645; while the USD fell 1.03% against the Japanese yen to 132.07.
The greenback continued to fall after the US Institute of Supply Management (ISM) said the country’s non-manufacturing PMI fell to 49.6 in December from 56.5 in November. This is the first time. For the first time since May 2020, the services PMI fell below 50, indicating a contraction in the sector that accounts for more than two-thirds of US economic activity.
The US Commerce Department also said on Friday that factory orders fell 1.8 percent in November, after rising 0.4 percent in October. Reuters survey results showed earlier Economists forecast orders down 0.8%.
Atlanta Federal Reserve President Raphael Bostic on Friday said the latest US jobs data is another sign that the economy is slowly slowing and that if that continues, the Fed could cut interest rate hike to 1/4 percentage point at the next policy meeting.
Richmond Fed President Thomas Barkin also said the US central bank’s move to smaller rate hikes would help limit the damage to the economy.
The Fed raised interest rates by 50 basis points at its December meeting, after making four 75 basis points in a row.
After the US jobs and wages data was released, Fed funds futures traders raised their bets that the Fed would raise rates by 25 basis points at the conclusion of the two-day meeting. The odds on a 25 basis point increase have now risen to 73%, from 54% before the jobs report was released, and the odds on a 50 basis point increase are now down to 27%.
US consumer price data, to be released on January 12, is highly anticipated by the market, because it may affect the policy of the US central bank.
It is estimated that December consumer prices were unchanged, while core prices increased by 0.3%.
The Russian ruble rallied against the dollar and euro on Friday as oil prices rose. Accordingly, the ruble increased by 0.55% against the USD to 71.79 RUB/USD, and by 0.86% against the euro 75.57 RUB/EUR.
Most emerging Asian currencies moved higher at the start of Friday’s session but cooled later in the session.
China’s yuan strengthened against the greenback on investor optimism that the recent policy support measures extended to the struggling real estate sector will boost the economic recovery.
China’s central bank and the banking and insurance regulator on Thursday said they had set up a dynamic adjustment mechanism for mortgage rates for first-time homebuyers to further provide support for real estate sector. Mortgage rate floors could be lowered or abolished for first-time homebuyers in cities where new home sales are falling.
The latest move adds to a series of measures announced since November as the government moved to widen the lifeblood of the sector after many developers defaulted on their debt obligations.
The spot yuan rose 0.35% or 243 pips to 6.8577 CNY/USD. Earlier this week, the yuan hit a four-month high against the dollar.
The Thai baht ended the session flat from the previous session, but overall the week’s biggest gain against Asian currencies, on hopes of a boost in tourism from China as the country gradually reopens its borders.
The Singapore dollar and the Korean won were also unchanged from the previous session, although volatile on Friday.
On the stock market, Wall Street ignited a wave of share price gains around the globe on Friday as the key US jobs report showed a slowing pace of wage growth in December, prompting a surge in wages. Investors are betting that inflation is easing and the Fed doesn’t need to be as aggressive as before.
The MSCI Global Index jumped 2.1% in session 6/1. On Wall Street, the S&P 500 was up 2.3%, the Dow Jones was up 2.1% and the Nasdaq Composite was up 2.6%.
The crypto market also rallied strongly late Friday following the data from the US, with Bitcoin reversing course to $16,947.
Gold prices rose more than 1% on Friday to a seven-month high as Treasury yields and the dollar fell after US economic data bolstered expectations of a Fed tightening pace.
Spot gold rose 1.9 percent to $1,867.18 an ounce, its highest level since June 13 last year. Prices have gained about 2.1% this week, the most since the week of December 2.
Gold futures for February also rose 1.6 percent to $1,8697.
Gold is likely to continue trading sideways or up slightly in the first quarter, after seeing renewed interest from hedge funds at the start of the new year, said Jim Wyckoff, senior analyst at Kitco Metals.
References: Refinitiv, Coindesk