Dollar set for strongest week since July on reduced rate cut bets

By Ankur Banerjee

SINGAPORE (Reuters) – The dollar was steady on Friday, heading for its strongest weekly performance since July on scaled back expectations of steep and early interest rate cuts this year ahead of closely watched U.S. payrolls data later in the day.

U.S. private employers hired more workers than expected in December, data showed on Thursday, pointing to persistent strength in the labour market that should continue to sustain the economy.

That helped the dollar shrug off weakness and against a basket of currencies, the U.S. currency was last at 102.39 in early trade on Friday. The is up 1% for the week, its strongest performance since the week ending July 23.

The dollar’s rebound will be tested by the nonfarm payrolls report due later in the session. Economists polled by Reuters forecast that 170,000 jobs were created in December, fewer than the 199,000 in November.

“The USD strength we are seeing at the start of 2024 may have more to do with safe-haven demand as equity markets have struggled and market volatility has increased,” said Hamish Pepper, fixed income and currency strategist at Harbour Asset Management.

Traders have dialled back rate cut bets, with markets now pricing in a 65% chance of a rate cut in March, compared to 86% chance a week earlier, CME FedWatch tool showed. They are also pricing in less than 140 basis points of cuts this year versus 160 basis points at the end of December.

Some analysts still see market expectations as too aggressive.

The dollar is likely to be supported by an increase in U.S. rates, relative to the rest of the world, as “Fed rate cut expectations prove too aggressive,” Pepper said.

“While core PCE inflation has dropped quickly to around 3%, this is not the 2% that the Fed targets and the last mile may require policy rates to stay at more elevated levels for longer than anticipated.” Inflation, as measured by the personal consumption expenditures price index, rose 2.6% in the 12 months through November.

The dollar’s ascent has seen the Japanese yen weaken considerably this week, with the Asian currency down 2.5% against the dollar, on course for its weakest weekly performance since June.

On Friday, the yen weakened 0.06% to 144.72 per dollar, having touched a more than two-week low of 144.90 earlier in the session.

The euro was last up 0.09% at $1.0953, on track for 0.8% decline in the week, snapping a run of three weeks of gains. Sterling was last at $1.2694, up 0.12% on the day, but still on course for a small decline for the week.

In cryptocurrencies, bitcoin dropped 0.91% to $44,082.61. Ether fell 0.53% to $2,263.75.

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Currency bid prices at 0123 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar $1.0952 $1.0944 +0.08% -0.77% +1.0956 +1.0945

Dollar/Yen 144.7850 144.6550 +0.10% +2.66% +144.8900 +144.6600

Euro/Yen 158.56 158.27 +0.18% +1.88% +158.6700 +158.2800

Dollar/Swiss 0.8492 0.8502 -0.12% +0.90% +0.8504 +0.8492

Sterling/Dollar 1.2690 1.2682 +0.07% -0.27% +1.2695 +1.2680

Dollar/Canadian 1.3353 1.3350 +0.03% +0.73% +1.3359 +1.3349

Aussie/Dollar 0.6707 0.6707 +0.01% -1.62% +0.6713 +0.6704

NZ 0.6236 0.6236 +0.06% -1.25% +0.6241 +0.6230

Dollar/Dollar

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

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