US Dollar weakens on higher Jobless Claims – Crypto News – Crypto News
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Gravity seems likely to exert downward pressure on the USD sooner rather than later – JP Morgan Gravity seems likely to exert downward pressure on the USD sooner rather than later – JP Morgan

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US Dollar weakens on higher Jobless Claims – Crypto News

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  • The DXY Index shows losses, trading near the 103.05 area.
  • Weekly Jobless Claims came in higher than expected.
  • Markets still digesting Wednesday’s Fed decision and Powell’s words.

The US Dollar (USD) is currently trading at 103.05, with a declining trend, largely triggered by the release of soft labor market data on Thursday that outshadowed strong ISM PMIs figures. Markets are still digesting Federal Reserve (Fed) chair Jerome Powell’s words from Wednesday, which helped the index jump toward 103.80.

Fed Chair Powell reinforced the idea that a rate cut in March is unlikely despite ongoing market speculation. Nevertheless, he noted rate adjustments remain primarily data-dependent, with upcoming jobs data setting the pace of the US Dollar and expectations for the short term.

Daily Digest Market Movers: US Dollar declines following weak labor market figures

  • The ISM Manufacturing PMI for January came in at 49.1, lower than the consensus estimate of 47 but slightly higher than the previous figure of 47.1.
  • The initial Jobless Claims for the week ending in January 27 reported by US Department of Labor are at 224K, higher than the consensus forecast of 212K and the previous figure of 215K.
  • Investors are keenly awaiting the January Nonfarm Payrolls report due on Friday to continue placing their bets on the next Fed decisions. 
  • As for now, markets are seeing the easing cycle starting in May, but the odds of a cut in March are still high around 40%, according to the CME FedWatch Tool.
  • In case Friday’s labor market figures come in weaker than expected, the dovish bets on the Fed may rise, applying further pressure on the USD.

Technical Analysis: DXY bears step in to push the index below 200-day SMA

The indicators on the daily chart are reflecting a tentative dominance of selling momentum in the short term. The Relative Strength Index (RSI), albeit on a negative slope, is holding in positive territory, reflecting dwindling buying momentum. This is further supported by the Moving Average Convergence Divergence (MACD) indicator, which showcases decreasing green bars, an indication that the selling pressure is slowly gaining traction.

Furthermore, the positioning of the index concerning its 20,100 and 200 Simple Moving Averages (SMAs) points to a bullish hold in the broader context. The pair still holds above the 20-day SMA, signaling that the bears have failed to command complete control in the short term. However, the DXY’s positioning below the 100 and 200-day SMAs suggests more dominant selling momentum in the longer-term.

 

 

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

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