The U.S. Dollar is trading in stronger ranges this morning after data releases giving further evidence of a resilient economy.
Overview
U.S. Jobless Claims came in at their lowest levels since September 2022 as labor remains a steady backbone of the current situation. While the end of the year was marked by increased bets on the chances for interest rate cuts by the Fed, this has rapidly changed, in particular when it comes to the timeline of when those cuts may arrive. A variety of Fed members have explained that they want to see inflationary targets reached and see no need to start making a major turn from contractionary monetary policy.
As it stands, chances of a cut by the March meeting dropped to just 50.0%, but have increased for the ones during the second half of the year. It is worth pointing out that some Housing numbers also came in trying to tell a different story with the construction of new homes declining for the first time in four months. We shall see if a combination of instability in housing and less jobs in the Services sector can make enough of a dent in the next couple of months to make for a change of heart from the Fed. Per the Bloomberg Dollar Spot Index, the U.S. Dollar has mounted a comeback and more than recovered its December losses of 1.7%.
What to Watch Today…
EUR ⇓
The Euro has weakened and rightfully so as the probability of a cut to rates was openly discussed by European Central Bank officials. While it is true that ECB President Christine Lagarde explained that jumping into reduction borrowing costs could undo the disinflation achieved in the past 15 months, other members are saying that June may be the appropriate time to consider looser policy. In recent months, the idea was not to discuss rates and leave it clear to markets that there was a tightening mandate until otherwise announced. Economic figures will need to shine in the Euro-zone or risk that the shared currency could see a serious drop as it already has struggled to keep the momentum from December.
CAD ⇓
The Canadian Dollar has also dropped its December gains, dropping in value even after inflationary measures looked strong. Although the “Loonie” has come under some pressure, it has more potential for appreciation than others as the Bank of Canada looks to hold rates higher for longer. We believe that in addition to keeping tabs with the Fed, Canadian Dollar can benefit from the global growth narrative if it starts manifesting itself as markets look for a resurgence in China and other places.
