Dollar surges post US payrolls data
The dollar has extended its gains at the start of this week after surging on Friday following much stronger than expected US jobs data for January, which has also resulted in the market reassessing the timing and pace of Fed rate cuts this year and an associated spike in bond yields. The US currency has strengthened by around 1.5 cents and 2 cents against the euro and sterling respectively since the jobs report to trade at about $1.0750 and $1.2550 this morning, leaving EURGBP hovering just above £0.8550.
US bond yields jumped by around 15 bps on Friday post the jobs numbers, and rose by a further 10-15 bps yesterday following comments by Fed Chair Powell, again downplaying the chances of an early cut in interest rates, and more strong economic data. German and UK yields have headed north in sympathy over the past couple of trading sessions, increasing by 15-25bps.
The US economy added 353k jobs in January, almost double the consensus forecast, and December’s outturn was revised up by circa 100k to show a gain of 333k. The unemployment rate remained at 3.7% last month, while the annual rate of hourly earnings growth reaccelerated to 4.5% from an upwardly revised 4.3% in December. Meanwhile, the pace of activity in the services sector picked up in January according to the latest ISM survey, led by a jump in new business last month.
In a television interview aired on Sunday but conducted last Thursday, Fed Chair Powell noted that rate reductions are likely this year but more or less ruled out a move at the March meeting. The market has also pared back the chances of a cut at the following meeting in early May, to around 70% from 100% before Friday’s data, and now sees about 115bps worth of easing in total this year, down from around 145bps previously.
The OECD in its Interim Economic Outlook, published yesterday, says falling inflation will allow both the Fed and ECB to begin lowering interest rates in 2024. It expects the former to commence easing policy in the second quarter and the latter in the third quarter, and sees them lowering rates by 75bps and 50bps respectively by the end of this year and by the same again by the end of 2025.
It is relatively quiet on the economic data front for the rest of the week with the ECB’s latest consumer inflation expectations survey today and US jobless claims on Thursday the main releases of note, though we do have a good number of central bank speakers, from the Fed and ECB particularly, over the next few days.