Dollar closes choppy day on mixed economic signals

The US dollar index appeared to rise amid expectations that the Federal Reserve may accelerate its schedule of rate cuts and hikes, but by late afternoon it had reversed those gains.

The dollar index rose 0.30% on Friday to hit highs of 96.45, en route to match the 52-week highs of 96.94 reached last week. But sentiment reversed at noon as the Dollar index traded roughly flat from the previous day’s close at around 96.15.

The dollar index is sensitive to movements in sentiment regarding Federal Reserve rate hikes, as the dollar has historically risen in value before the Fed rate hikes and is already up around 7% from the start. of the year.

While comments from the Federal Reserve this week indicated rate hikes were imminent, lackluster jobs numbers and growing Covid-19 concerns over the Omicron variant kept the dollar from making the gains.

Jobs report disappoints

The dollar is expected to fall following a lackluster jobs report on Friday, a sign the economy was not growing fast enough for the Fed to speed up its timeline.

Total non-farm payroll employment rose only 210,000 in November, the smallest increase since December of last year and well below expectations of 550,000 to 700,000 jobs.

“This morning’s jobs report left more to be desired on the ‘maximum employment’ side of the FOMC’s dual tenure and may deter the Fed from acting too quickly on its cutback schedule,” Wells Fargo economists wrote in a report provided to Capital.com. “Although the previous two months were revised upwards by 82,000, this failure means that with just one final employment report in 2021, the non-farm payroll is still around 4 million jobs lower. at its pre-pandemic level. “

Stay optimistic about the economy

The markets initially appeared to be looking beyond the numbers in the Jobs Report.

The unemployment rate fell to a 21-month low at 4.2%, from 4.6% the month before.

Wells Fargo analysts said the unemployment rate fell for “the right reasons,” which include a 542,000 drop in the number of unemployed while the civilian labor force increased by nearly 600,000 and the participation rate increased. rose to 61.8%.

Fed comments

Additionally, investors latched onto comments from Federal Reserve Chairman of St. Louis, James Bullard, who in a speech on Friday said the Federal Open Markets Committee (FOMC) would consider stepping up the pace at which it cuts the Fed’s purchases of treasury bills and mortgages. securities.

Bullard said he would consider stepping up the pace of the Fed’s current cut plan so that asset purchases come down to zero in the spring, as opposed to the current path in June. He would even consider raising rates before the cut ends if the economy is doing enough.

Federal Reserve Chairman Jerome Powell made similar statements to Congress earlier in the week, leading Bank of America to revise its estimates to say the Fed will end its asset purchase program in March but will still hike rates in June.

Economic headwinds

However, that was not enough to overcome the persistent headwinds in the economy, including the spread of the Omicron variant, analysts at Bank of America said in a report sent to Capital.com.

“While it’s encouraging to see positive flows in the workforce, there are also headwinds that could keep workers on the sidelines,” analysts said. “There has been some relief in the labor supply, but the increase in Covid-19 cases and the mandate of vaccines could be headwinds for further improvement. “

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