NEW YORK: The dollar slipped on Thursday after hitting two-week highs the day before as the positive impact of better-than-expected US labor market data faded and investors braced for the all-important nonfarm payrolls report on Friday.
The US currency earlier advanced following data showing US private employers hired more workers than expected in December. Private payrolls increased by 164,000 jobs last month, the ADP National Employment Report showed, the largest monthly increase since August. Economists polled by Reuters had forecast private payrolls rising by 115,000.
At the same time, initial claims for state unemployment benefits dropped by 18,000 to a seasonally adjusted 202,000 for the week ended Dec. 30, also bolstering the dollar. Economists polled by Reuters had forecast 216,000 claims for the latest week.
The dollar initially rose after the data, but gains have since eased.
“Yes, we saw a beat with the number of jobs created in the ADP report, but I would still point to the JOLTS yesterday, which showed quit rates coming down and hiring rates coming down,” said Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York.
“So there is still ... weakening being priced in the labor market. I suspect that tomorrow with nonfarm payrolls, it will be manifested in lower wage inflation,” he added.
Following Thursday’s data, US interest rate futures reduced expectations on the number of rate cuts for 2024 to four rate decreases of 25 basis points each, from about six late on Wednesday, according to LSEG’s interest rate probability app.
“It’s important to keep in mind that the Fed has to go through a few steps before it can cut rates,” said Wizman.
“First, it has to go to a neutral bias, then an easing bias, before it can cut rates. That can take a few meeting cycles.” Wednesday’s release of the minutes of the Federal Reserve’s Dec. 12-13 policy meeting was viewed as modestly hawkish by market participants. Fed officials “stressed ... that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the (Federal Open Market) Committee’s objective.” “Certainly, the Fed minutes yesterday were not suggesting a rate cut in March,” Wizman said.
In cryptocurrencies, bitcoin gained 2.9% to $44,114 . Investors are anticipating the approval by the US Securities and Exchange Commission of the first spot bitcoin exchange traded fund over the next week or so.
In late morning trading, the dollar index was slightly lower at 102.33, after hitting two-week highs on Wednesday.
Against the yen, the greenback rose to two-week peaks, climbing for three straight days. The dollar was last up 1% at 144.7 yen, on track for its largest one-day gain since late October.
Macquarie’s Wizman does not believe dollar gains since the beginning of the year could be sustained despite a pushback in rate cut expectations.
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