Market Update
The US dollar rallied on Friday (Jan 10) after data showed that the world’s largest economy created more jobs than expected last month, reinforcing expectations that the Federal Reserve will pause its rate-cutting cycle at its policy meeting later this month.
Job Market Strength
The greenback also extended gains following a report that showed US consumer inflation expectations for the next year and beyond jumped in January. The dollar rose to its highest since July against the yen after the data, before turning lower on the day. It was last down 0.1 per cent at 157.845 yen.
Euro Performance
The euro, on the other hand, dropped to its lowest since November 2022 versus the greenback. The single eurozone currency was last down 0.5 per cent at US$1.0244, falling for a second straight week.
Forecaster Expectations
A significant number of foreign exchange forecasters expect the euro to reach parity with the dollar in 2025, a Reuters poll showed this week.
Federal Reserve Expectations
The greenback’s rally kicked off after a Labor Department report showed that the US economy added 256,000 jobs in December, much higher than economists’ forecasts for an increase of 160,000. The November jobs number, however, was revised downwards to 212,000
Unemployment Rate and Wage Growth
The unemployment rate, meanwhile, dipped to 4.1 per cent, compared with expectations of a 4.2 per cent reading, while average hourly earnings increased 0.3 per cent last month after gaining 0.4 per cent in November. In the 12 months through December, wages advanced 3.9 per cent after rising 4.0 per cent in November
Expert Analysis
“The strength of the December payrolls data clearly removes any need for the Fed to cut rates with urgency,” wrote Jane Foley, head of FX strategy, at Rabobank in London. “For a while it has been Rabobank’s central view that the Fed will cut rates just once this year. However, if Donald Trump wastes no time in initiating his policies, it is conceivable that window could close altogether.”
Conclusion
The US dollar rallied on Friday after strong job market data reinforced expectations that the Federal Reserve will pause its rate-cutting cycle. The greenback extended gains following a report that showed US consumer inflation expectations jumped in January. The euro, on the other hand, dropped to its lowest since November 2022 versus the greenback.
FAQs
Q: What drove the US dollar’s rally?
A: The US dollar rallied after strong job market data showed that the US economy created more jobs than expected last month, reinforcing expectations that the Federal Reserve will pause its rate-cutting cycle.
Q: What is the current exchange rate between the US dollar and the euro?
A: The euro dropped to its lowest since November 2022 versus the greenback, with the single eurozone currency last down 0.5 per cent at US$1.0244.
Q: What do foreign exchange forecasters expect for the euro in 2025?
A: A significant number of foreign exchange forecasters expect the euro to reach parity with the dollar in 2025, according to a Reuters poll.
Q: What is the Federal Reserve’s expected policy move in January?
A: The market has priced in a pause in the Fed’s easing cycle at the January meeting, according to LSEG estimates.
