Dollar Surges On Strong US Jobs Data

Dollar Surges On Strong US Jobs Data

February 5, 2023 0 By Wiley McDermott

On Monday, the US dollar rose against the euro to a high of three weeks, with traders pricing in the US Federal Reserve to lift the interest rate above 5% for taming inflation.

This was after the data from the US Labor Department showed that the labor market has remained resilient.

An earthquake in northwest Syria and Turkey combined with a strong US dollar put emerging currencies under pressure, which saw the Turkish Lira drop to a record low against the greenback at 18.85.

The data

Last Wednesday, the Federal Reserve delivered an interest rate hike of 25 basis points and announced that it had made progress against its battle with inflation.

This prompted investors to price in the possibility of the Fed slowing down interest rate hikes moving forward.

However, the US nonfarm payroll data on Friday turned out to be better than expected and a rebound in the services industry was also recorded in January.

This sent the US dollar to a high it had reached in mid-January, as investors priced in an increase in the Fed’s policy rate in June to 5.05%.

Dollar movements

Market analysts said that the dollar movements were being closely monitored after the US jobs report had turned out to be hotter than expected.

They said that a number of Fed speakers are due for a speech and if they are not in agreement with the dovish tilt of the US central bank seen last week, it could result in a risk-off rally.

If there is a risk-off mood in the market, it would only push up the US dollar higher and bring down broad indices.

There was a 0.3% drop in the euro against the US dollar, which saw it reach its lowest level at $1.0757 since January 12th.

On Thursday, the single currency had climbed to a high of 10 months after the deposit rate of the European Central Bank (ECB) rose to 2.5% and it promised another 50 basis points to increase in the next month.

Other details

Robert Holzmann, the chief of the Austrian central bank, said on Monday that there is still a bigger risk that the ECB will not increase the interest rates high enough as opposed to pushing them too high.

This is due to the fact that the euro area still has high inflation. A survey showed that investor morale in the euro zone had improved for the fourth consecutive month in February.

This saw it climb to its highest level since March last year, but it was still in negative territory because of the possibility that the economy could become stagnant.

The dollar index, which measures the greenback against a basket of its peers, climbed to a three-week high at 103.40 and was trading at 103.26 at 1207 GMT, which is an increase of 0.13%.

On Friday, there was a 1.1% gain in the dollar index. Increasing tensions between China and the US also gave the safe-haven dollar a boost, while the Japanese yen recorded a slide against the greenback.