The US dollar broadens its gains on the higher side on Monday morning amid a low risk appetite just before a key US inflation report, expected to release later in the week. The inflation report is likely to provide much needed clarity on the Fed’s monetary policy and economic outlook for the year 2024.
The Yen started its slow recovery against the push back it experienced last week, where it struggled near 145 per dollar level. Meanwhile, the New Zealand and Australian dollars, being slightly risky currencies, edged on the lower side on the first day of week.
Trading volumes were generally thin in Asia with Japan enjoying a holiday.
The US dollar fell 0.22% to 144.29 against the yen, losing some of its gains from the previous week when it gained more than 2.5% on the Japanese currency, in one of the best weekly performances since Mid-2022.
Meanwhile, the Kiwi lost its ground and went down by 0.05% to $0.6239, after sliding down by 1.2% in the previous week, while the dollar index remained steady at 102.43 since then. The rally currently being experienced by the greenback is underpinned by increased treasury yields as the market modified its expectations regarding the Fed rate cuts.
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US Inflation Reports
An important report on US inflation data will be released on Thursday which might alter market’s expectations and analysts’ views, after the jobs data released on Friday showed that US employers hired more than expected in the month of December.
However, another survey about the services sector showed it has been slowing considerably since last month, with the employment ratios dropping at its lowest levels since the last 3 years, radiating a mixed picture of the economy.
Economists at Wells Fargo said that, “On balance, the key labor market themes remain in place. The labor market is no longer as rigid as it was earlier as signaled by slower job growth, less turnover and slower wage gains.”
They further added, “Having said that, job growth remains solid on an absolute basis even if it has slowed on a relative one, and the low level of layoffs remains encouraging.”
“However, we still suspect the FOMC will keep the Fed funds rate unchanged over the next few months as it awaits additional confirmation that inflation is durably on its way to 2%.”
Recent surveys show that the market is currently pricing an approximately 64% probability that Fed could begin cutting rates by March, compared to 90% chance a week ago. In addition to that, the US dollar broadens its gains over sterling by 0.12% moving towards $1.27035, while the euro remained stable at $1.09405, ahead of inflation report this week
The Australian dollar also went down by 0.13% to $0.67055 on the first day of the week, after falling more than 1.5% in the previous week.