The Commodity Dollar is still stout against the Greenback, but EUR/USD is sluggish despite last week's disappointing US Non-farm Payroll data.
The US dollar index (DXY) fell to the 95.70s at the end of last week due to the release of disappointing December 2021 Non-farm Payroll data. However, DXY climbed again to the 95.90s range in Monday's Asian session trading (10/January). The Commodity Dollar is still dashing against the Greenback, but EUR/USD is sluggish.
The December 2021 US employment report actually still describes conditions that are close to "full-employment", although the Non-farm Payroll figures are not as good as market expectations. The reason is, the US unemployment rate fell deeper to 3.9 percent compared to the consensus estimate of 4.2 percent.
Inflationary pressures from the labor sector also remained high. This is evident from the growth in Average Hourly Earnings which reached 4.7 percent in December, or outperformed the consensus estimate of only 4.2 percent -although weaker than the 5.1 percent growth in November-.
“The lower-than-expected number of additional (Non-farm Payroll) jobs may be related to the labor supply shortage. Monthly vacancies reported for November remain high, indicating that demand for labor is still very large. Salary growth is steady. The highs are heading that way too," said Sophie Altermatt, an economist with Julius Baer.
The labor market situation which is getting closer to "full-employment" will allow the US Federal Reserve to continue its plan to tighten its monetary policy this year, thereby propping up the appreciation of the US dollar. In addition, market participants hope that the release of US inflation data and testimony from a number of Fed officials in the coming week will support the prospect of a rate hike starting in March.
The Forex calendar shows at least two important events in the next two days. First, Federal Reserve Chair Jerome Powell and Governor Lael Brainard will testify before members of the US Senate starting Tuesday (tentative schedule) regarding their nominations as Fed Chair and Vice Chair. Second, the publication of US consumer inflation data on Wednesday is likely to show a further increase of up to 7 percent (Year-on-Year).
"The dollar index this week is likely to reciprocate some of its losses on Friday amid Powell's possible hawkish comments and rising US inflation," said Qi Gao, FX strategist at Scotiabank. But he added that the greenback will then run out of energy and return to the 94.00 range, once the market has fully priced in the outlook for a March Fed rate hike.
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