The U.S. Dollar is trying to find direction after initially climbing, following solid labor data after the release of the Employment Situation.
Overview
Non-Farm Payrolls for December came out higher than expected at 223K vs. 203K, while the Unemployment Rate fell from 3.7% to 3.5%. However, it is worth noting that there was a Two-Month Payroll Net revision of (-28.0K) while Average Hourly Earnings failed to advance by 5.0% to just 4.6%. Meanwhile, the markets are trying to interpret how these figures will affect the Fed, if at all, in their determination to hike interest rates. Much of the fear surrounding higher interest rates seems to be fading. While risk appetite continues, expect the pressure on the dollar to also remain regardless of how good an economic picture data paints. The Fed is going to have a clearer mind in February after Q4 numbers are truly digested, and their messaging could indeed change since Powell warned about data-sensitive decisions. At this time, labor and the economy do not seem to be in a crisis, so it will be interesting to see how much the economy can really cool down based on the Fed going forward. Can their measures and actions really trigger the necessary doom for a recessionary period?
What to Watch Today…
- No major economic events are scheduled for today
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EUR ⇑
The Euro is swinging within a half-percent range band as data from Germany, and the rest of the Euro-zone is digested. November figures for Retail Sales and Factory Orders in Germany all disappointed with little advancement to the prior and contraction in the latter. Meanwhile, Euro-zone Consumer Price Index for December showed that, indeed, there are some signs of deflation with a contraction of (-0.3%) vs. (-0.1%) expected. The region did not see that deep of a contraction in Retail Sales, and Economic Confidence grew a little more than expected in a survey.All around, it seems the European continent has survived a lot of the pressures that have arrived via pandemic supply-chain shortages and energy issues because of the Russian invasion of Ukraine. If the trend remains, the European Central Bank is likely to stay in tightening mode and thus aid the common currency to increase its value further as the year progresses.
GBP ⇓
The Pound lost over 1.2% trading yesterday as markets look for signs of U.K. economic health. Unfortunately, the numbers are not helping with S&P Services Purchasing Managers Index for December showing a negative reading instead of the expectation for expansion. Recession fears in the U.K. are growing, and it could possibly accelerate the Pound’s downfall to levels last seen in September. We shall see if other data next week finds room for a turnaround or if the descent will continue for Sterling.
