- The US Dollar turns flat ahead of the US trading session on Thursday.
- US President Trump is set to speak at the World Economic Forum in Davos.
- The US Dollar Index (DXY) is back above 108.00, though faces some mild selling pressure again.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is trading back to flat after some earlier gains this Thursday ahead of some US economic data. Still, there is a long road to recovery, although after a few days with an almost empty US data calendar, traders can brace for a pickup in the next releases. Positive and upbeat data could put inflation concerns back on the agenda, which would fuel higher rates and a stronger US Dollar again.
Meanwhile, the US economic calendar is starting to take shape with the weekly Jobless Claims and the Kansas Fed Manufacturing Activity Index. This all precedes the release of Friday’s S&P Global Purchase Managers Index (PMIs) numbers. Later this Thursday, US President Trump will also appear virtually at the Davos World Economic Forum where he will hold a speech.
Daily digest market movers: US jobless higher
- At 13:30 GMT, the weekly Jobless Claims for the week ending on January 17 came out. The actual number came in at 223,000, coming from 217,000 in last week’s count. The Continuing Claims for the week of January 10 came in at 1.899 million, from 1.859 million previously.
- At 16:00 GMT, the Kansas Fed will release its manufacturing activity survey for January. No forecast is available, with the previous reading at -5.
- In that same timeframe, US President Donald Trump will make a virtual appearance at the World Economic Forum in Davos.
- Equities are looking sluggish this Thursday, facing some profit-taking after its broad rally throughout the week.
- The CME FedWatch tool projects a 57.1% chance that interest rates will remain unchanged at current levels in the May meeting, suggesting a rate cut in June. Expectations are that the Federal Reserve (Fed) will remain data-dependent with uncertainties that could influence inflation during US President Donald Trump’s term.
- The US 10-year yield is trading around 4.63%, off its poor performance seen earlier this week at 4.528% and still has a long way to go back to the more-than-one-year high from last week at 4.807%.
US Dollar Index Technical Analysis: Not that easy
The US Dollar Index (DXY) halts its correction and consolidates around 108.00 on Thursday. Upcoming US economic data this week could fuel inflation concerns again with higher rates and a stronger US Dollar as a result.
If the recovery in the DXY wants to continue its ascent, the pivotal level to gain control of is 109.29 (July 14, 2022, high and rising trendline). Further up, the next big upside level to hit before advancing further remains at 110.79 (September 7, 2022, high). Once beyond there, it is quite a stretch to 113.91, a double top from October 2022.
On the downside, the first area to watch is 107.80-107.90, which held this week’s correction. Further down, the convergence of the high of October 3, 2023, and the 55-day Simple Moving Average (SMA) around 107.50 should act as a double safety feature to catch any falling knives.
US Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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