Daily Market Pulse

Dollar pulls back after Nonfarm payroll report


The U.S. dollar extended yesterday's gains (0.76%) as a solid U.S. labor market bolstered the Federal Reserve's case for continuing to raise interest rates. According to ADP figures released Thursday, private employment in the United States climbed by 235,000 jobs in December, well above estimates for a 150,000 increase. Investors are now looking forward to the December jobs report due today, which is projected to slow from the previous month. However, another positive surprise would likely stoke rate hike fears. Meanwhile, minutes from the FOMC's December meeting revealed that policymakers agreed to raise rates and keep them at a low level until there were clear indicators that inflation was dropping.


The Euro is falling this morning, but it is still close to a seven-month high as investors analyze the latest inflation figures. Fresh statistics indicated that pricing pressures in the Eurozone reduced more than predicted, with annual inflation touching a four-month low. Inflation also fell in Germany, France, Italy, and Spain, as energy expenses fell as natural gas prices fell. However, core inflation remains at historic highs. As a result, the new CPI data are unlikely to alter the European Central Bank's monetary policy path for the time being. Meanwhile, Governing Council member Francois Villeroy de Galhau recently stated that the ECB should reach the terminal rate by the summer and then maintain it at that level to control inflation.


Following 1.22% losses, the Sterling continues to inch lower today as bearish pressure persists following the release of a solid job market report from the United States. Domestically, the Halifax home price index in the United Kingdom gained 2% year on year in December 2022, dropping from a 4.6% gain the previous month and indicating the slowest rate of expansion since October 2019. Sterling may regain traction over the weekend if the U.S. Nonfarm Payrolls report is negative. In other news, Prime Minister Rishi Sunak pledged in his first big speech of 2023 to lower inflation, strengthen the economy, and reduce the national debt.


The Japanese Yen fell against the dollar, retreating from a seven-month high achieved earlier in January, after statistics revealed that private employers in the United States expanded more than predicted in December, allowing the Federal Reserve to continue hiking interest rates. Meanwhile, the Yen rose for the second month in a row in December, owing to growing anticipation that the Bank of Japan may soon abandon its ultra-easy policy after abruptly raising the upper limit of its tolerance band on 10-year government bonds to 0.5% from 0.25% the previous month. In other news, the Jibun Bank Japan Services PMI was 51.1 in December 2022, up from 51.7 in November and a final 50.3 in October. This was the fourth month in a row that services activity increased because of an increase in tourism and an improvement in Covid circumstances.


The Loonie extends its losses today after falling 0.68% on Thursday in response to optimistic job data from the U.S. economic docket. Meanwhile, domestic trade data indicated that exports fell by 2.3% month on month due to reduced energy prices, causing the Canadian economy to register its first goods deficit in nearly a year. Traders' attention will now go to Statistics Canada, which is set to release the monthly employment report for December later today. The Canadian economy is expected to have added 8K jobs during the reported month, down from 10.1K in November. Furthermore, the unemployment rate is expected to rise from 5.1% to 5.2% in December.


The Peso suffered minor losses today after gaining 0.29% against the U.S. dollar yesterday. Still, the Peso rose for the fourth consecutive day on Thursday, remaining resilient despite a stronger U.S. dollar and rising rates following solid December ADP employment statistics. Meanwhile, Mexican swaps are rising across the curve, in line with rising U.S. Treasury rates and a more hawkish message from the Bank of Mexico; the curve pricing in more than 50 bps more hikes before the tightening cycle finishes in 2Q 2023, putting the policy rate to just above 11%. In other news, Mexican Foreign Minister Marcelo Ebrard stated in a press conference Thursday that President Lopez Obrador will discuss security, migration, and climate change at the North American Leaders Summit next week in Mexico City.


The Chinese Yuan is up 0.2% against the U.S. dollar for the day as the People's Bank of China (PBOC) continues to infuse liquidity into the banking system. As liquidity conditions eased at the start of the year, the PBOC conducted its largest weekly cash withdrawal on record through a short-term bond instrument. On Friday, the central bank pumped a total of CNY 2 billion into the banking system via seven-day reverse repo operations while maintaining the rate at 2%. According to the central bank, the measure aims to preserve reasonable and sufficient liquidity in the financial sector.


The Real is trading in the green on Friday as investors await the first ministerial meeting of Luiz Inácio Lula da Silva's government. Yesterday's increase of 1.47% was linked to the new government's announcement of economic measures, as well as indicators that management should have a more refined tone and speeches, which boosted market optimism. Domestically, the political situation continues to captivate investors' attention. The first ministerial meeting of the Lula government will take place today, and it is expected that the team will be aligned after a week of reshuffling and disruptions.


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