The dollar continued climbing on Tuesday Asian hours after falling for three straight weeks, hovering near a one-week high against major peers, as market bets on the Federal Reserve to cut interest rates.
On Friday, Fed Chair Jerome Powell indicated the central bank was ready to implement additional policy tightening measures if necessary. However, he also acknowledged that interest rates had already reached a restrictive level and were effectively curbing inflation. This boosted confidence among investors that rate cuts are on the horizon.
Various U.S. economic indicators will be released this week, including the November non-manufacturing ISM figures and the closely-watched nonfarm payrolls report. Both reports will shed further light on the future direction of interest rates.
The November U.S. jobs report is the most crucial economic indicator for investors this week. It is anticipated to show that the American economy added 180,000 jobs last month, an increase from 150,000 in October.
"The Fed is forecast to begin a significant easing cycle in Q2 of 2024 (markets are more aggressive relative to econ consensus), delivering 100bp cuts in 2024, another 100bp in 2025 and more in 2026 to a steady state rate of 2.75-3 percent," British bank Barclays said in a Monday note.
Barclay's consensus anticipates a marked slowdown in economic growth, with real GDP growth forecast to be a mere 0.4 percent in the first quarter and 0.3 percent in the second quarter. This figure is a notable drop from the estimated average of 2.5 percent in 2023.
Employment growth is also anticipated to slow considerably, and inflation will decline to a level close to the Fed's 2 percent target in 2024. While this suggests that the U.S. will avoid a recession, the risk of one remains high.
Apart from Barclays, ING analysts anticipate six rate cuts by the Federal Reserve next year in response to a slowing economy, amounting to a total of 150 basis points. UBS predicts even more aggressive rate cuts, suggesting that the Fed may lower rates by 275 basis points by the end of 2024.
Dollar vs. major currencies
The dollar index, which measures the greenback's value against a basket of six major currencies, rebounded from its recent decline, closing at 103.71. It remained steady at 103.63 at the time of writing, near its more than one-week high.
Analysts attribute the dollar's uptick to a partial reversal of its sharp sell-off in November, when the index plunged three percent, marking its steepest monthly decline in a year.
The euro, meanwhile, remained near its three-week low at $1.0843. Last month, the euro experienced a three percent surge against the dollar, reaching its highest level since August at over $1.10. The currency was driven by data indicating that U.S. inflation was decelerating rapidly.
"A lot of people are ... realizing that the strength of the euro, primarily because of the U.S. weakness to this point, is now potentially an inflection point," said Eugene Epstein, Moneycorp's head of structured products, North America. "The tone of the conversation seems to have shifted a little bit in that direction."
Germany's export performance in October unexpectedly faltered, contradicting hopes of a stabilizing trend in Europe's leading economy. Meanwhile, Eurozone retail sales data is due on Wednesday, ahead of the release of Chinese trade figures on Thursday.
The greenback gained a slight edge over the Japanese yen, reaching 147.12. A moderation in Tokyo's core consumer inflation, which exerted downward pressure on the yen, buoyed the gain. Earlier, it had touched 146.24 yen per dollar, its lowest level since mid-September.
The British pound stood at $1.2637, while the Australian dollar dipped to $0.6582. The dollar also firmed against the Swiss franc, trading at 0.8721.