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Dollar on the back foot after jobs data, Fed in the spotlight

03.05.2023 13:27  Autor: InvestCentrum  Sekce: Burzovní zpravodajství  Tisk

The dollar declined on Wednesday as gloomy jobs data, a standoff over the U.S. debt ceiling, and anxiety following banking collapses clouded the investment outlook. This was ahead of an anticipated increase in U.S. interest rates.

In the United States, layoffs rose to their highest level in more than two years in March and job openings declined for a third consecutive month, according to data released on Tuesday, raising the possibility that a weaker labour market will help the Fed fight inflation.

The dollar index, which compares the value of the dollar to six other currencies, decreased for the second day in a row, falling by 0.25% to 101.61.

Investor attention will be on what policymakers signal they might do next as the Fed wraps up a two-day meeting on Wednesday. It is widely expected that the Fed will increase interest rates by 25 basis points.

The derivatives market currently reflects traders‘ expectations that this will be the final hike before the Fed begins cutting interest rates. The central bank has stated that its decisions will be based on newly available information, much of which has revealed the economy is slowing and price pressures are easing, but not sufficiently to justify a sudden change in policy.

To be clear, a pause does not constitute a pivot. And this is a crucial point that bears repeating. A shift to cuts later in the year is implied by a pivot. Jack Janasiewicz, the lead portfolio strategist at Natixis Investment Management, said, „We aren’t so sure of that.

First Republic Bank’s failure over the weekend and concerns that the government may run out of money by June if lawmakers do not reach an agreement to raise the borrowing limit, also known as the debt ceiling, have left the U.S. financial markets in a state of shock.

In recent weeks, yields on extremely short-term Treasury bills have increased as investors have sold any bonds that are likely to mature around the deadline.

What traders really want to know is whether the U.S. debt ceiling issue is „one and done“ or whether it might cause the Fed to take a break in June, according to City Index strategist Matt Simpson.

„In reality, I suspect that Jerome Powell will maintain his hawkish mantra as not to undo the plethora of hawkish comments leading into the blackout period. They could always hold rates steady in June without feeling the need to signal it today, for example,“ he told the reporters.

The market will examine private sector payroll growth later on Wednesday. This could provide a preview of what to anticipate from Friday’s employment report, which is anticipated to show that the U.S. economy added 179,000 jobs in April.

Prior to the European Central Bank’s regular policy meeting on Thursday, the euro was last up 0.3% at $1.1032.

According to the money markets, there is an approximately 85% chance that the ECB will raise rates by 25 basis points and a 15% chance that it will do so by 50 basis points.

The Australian dollar lost 0.1%, erasing some of the 0.5% gain it had made the day before after the Reserve Bank of Australia surprised market participants by raising interest rates.

Sterling increased 0.3% to $1.2509 and was unchanged to 88.20 pence against the euro.

The Japanese yen increased 0.5% to 135.83 per dollar, recovering some of its losses from the previous week as a result of the Bank of Japan’s continued adherence to its ultra-loose monetary policy.

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