The U.S. dollar strengthened on Friday, bouncing back from early losses triggered by a mixed jobs report. The greenback’s recovery comes as investors look ahead to next week’s inflation data, which could shape expectations for a potential interest rate cut by the Federal Reserve later this month.
The dollar climbed from a three-week low against the euro, which fell 0.3% to $1.0561. The euro is set to end the week 0.2% lower, marking losses in four of the past five weeks. Meanwhile, the dollar steadied against the yen at 150 yen, closing the week up 0.2% after advancing in three of the last four weeks.
Mark McCormick, head of foreign exchange strategy at TD Securities, described the payrolls report as “noisy but soft enough” to support positioning adjustments in foreign exchange markets. He noted that earlier declines in the dollar mirrored a drop in U.S. Treasury yields, reflecting market expectations for a December rate cut.
“Next week’s CPI report will be critical ahead of the Fed’s meeting, but the dollar’s path of least resistance points to weakness, presenting buying opportunities in early 2025,” McCormick added.
Mixed Employment Data
The dollar faced selling pressure after U.S. labor data revealed an uptick in the unemployment rate to 4.2% from 4.1% over the past two months. This increase reflected a 355,000-job decline in household employment, a metric that has shown volatility in recent months.
Nonfarm payrolls, however, grew by 227,000 in November, exceeding expectations of 200,000 and suggesting resilience in the labor market. Still, the four-month average of job gains has dipped below 150,000, a level many economists view as insufficient to sustain labor market growth.
Despite the payrolls beat, analysts remained cautious. “Payrolls barely exceeded expectations, keeping the door open for further Fed action,” noted Bloomberg.
Consumer Sentiment and Inflation Expectations
The greenback regained momentum after the University of Michigan’s consumer sentiment survey showed a stronger-than-expected rise in December, alongside an increase in one-year inflation expectations from 2.6% to 2.9%.
In afternoon trading, the dollar index, which measures the currency against six major peers, rose 0.3% to 106. It also gained 0.1% against the Swiss franc, trading at 0.8786 francs.
U.S. rate futures now indicate an 85% likelihood of a 25-basis-point rate cut at the Fed’s December meeting, up from 70% prior to the jobs report, according to LSEG data.
Global Currency Movements
The dollar strengthened against South Korea’s won, rising 0.4% to 1,422.7, following reports of political unrest in the country. Meanwhile, the Chinese yuan remained flat but is set for its 10th consecutive weekly decline amid fears of U.S.-China trade tensions under President-elect Donald Trump. The offshore yuan last traded at 7.2843 per dollar, up 0.3%.
As markets brace for next week’s inflation data, analysts suggest the Fed may slow its pace of cuts in 2024, barring an unexpectedly high CPI reading. Economists expect core CPI to rise 0.3%, a figure that could sway the central bank’s decision at its December 18 meeting.
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