Dollar stabilizes as US unemployment claims boost Fed rate cut bets

Dollar stabilizes as US unemployment claims boost Fed rate cut bets

US dollar and euro banknotes are shown in this illustration taken on July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo Get License Rights

NEW YORK (Reuters) – The dollar fluctuated on Thursday after U.S. jobless claims rose more than expected last week, indicating a labor market slowdown that could prompt the Federal Reserve to cut interest rates in early 2024 as part of its attempt to… Moderate economics engineering. Landing.

The dollar index, a measure of the US currency against six peers, rose 0.08% as a slowdown in the US economy led to the market realizing that the Federal Reserve was done raising interest rates.

In contrast, the euro rose 0.02% to $1.0848 after jumping 1.69% on Tuesday, the largest percentage gain in one day since November 2022.

Claims for state unemployment benefits rose by 13,000 to a seasonally adjusted level of 231,000 for the week ending Nov. 11, the Labor Department said. Economists polled by Reuters had expected 220,000 claims in the last week.

The dollar fell on Tuesday, also recording its biggest single-day decline in a year, after consumer price data came in lower than expected and many expected inflation to slow quickly to the Federal Reserve’s 2% target.

The dollar rebounded slightly on Thursday as the market grappled with uncertainty over when the Federal Reserve might cut its overnight lending rate from 5.25% to 5.5%, which remains constraining economic growth.

“We have long been in the camp of expecting the Fed to ease faster than the market expects,” said Vasiliy Serebryakov, foreign exchange market strategist at UBS in New York, adding that economists at UBS expect a possible rate cut by the end of the year. First quarter of 2024.

He added: “But there are still a number of reasons why the dollar will not weaken very quickly, the most important of which is that the growth picture outside the United States is still very weak.”

Traders remain confident that interest rates will not rise, with futures now pricing 1 in 3 odds of a first cut by March, according to CME Group’s FedWatch tool.

While markets expect a quick shift from the Fed toward interest rate cuts in 2024, historically for that to happen there would have to be a big hit to the economy, said Karl Shamota, chief market strategist at Corpay in Toronto.

“The challenge here is how do we reconcile a soft landing view with rapid and significant interest rate cuts in 2024?” He said. “My view is that at this point, markets are moving too quickly…and as a result, the US dollar may outperform relative to expectations in early 2024.”

Jim Reed, a strategist at Deutsche Bank, on Thursday cited research by his bank’s economists that showed in the past two years this was the seventh occasion on which markets had priced in the Fed’s rapid shift to lower interest rates. In the past six, those expectations have completely vanished.

“At some point there will be a shift towards easy monetary policy, and this one may be closer to it than the others, but be careful because we have now hit this well seven times in two years,” Reid said.

Among other major currencies, the Japanese yen rose 0.47% to 150.66 per dollar. Earlier in the week, the yen fell to a one-year low of 151.92.

“With regard to the dollar versus the yen, the market still has a tendency to buy the dip in the short term because volatility has not been very high and intervention has not yet been achieved,” Serebryakov said.

The pound sterling was last trading at $1.2406, down 0.10% during the day.

Elsewhere, the Australian dollar fell 0.6 percent to $0.6465, while the New Zealand dollar fell 0.85 percent to $0.5974.

The Australian currency failed to draw support from the strong rebound in employment, as traders focused on the fact that gains were mostly in part-time employment, while the unemployment rate actually rose.

Reuters graphics

(Additional reporting by Herbert Lash and additional reporting by Amanda Cooper in London, Kevin Buckland in Tokyo and Ankur Banerjee in Singapore – Preparing by Mohammed for the Arabic Bulletin – Preparing by Mohammed for the Arabic Bulletin) Editing by Bernadette Boom, David Evans, Susan Fenton and Daniel Wallis

Our Standards: The Thomson Reuters Trust Principles.

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