The US dollar recovered on Friday after an initial decline triggered by a November jobs report that revealed higher unemployment and moderate job growth. Market anticipation for next week’s inflation report, which could significantly impact interest rate cut expectations for December, fueled the dollar’s resurgence.
The greenback rallied from a three-week low against the euro, with the euro ending the day down 0.3% at $1.0561. This positioned the European currency for a 0.2% weekly loss, marking four weeks of decline in the last five. Against the Japanese yen, the dollar recouped earlier losses to trade relatively unchanged at 150 yen, poised for a 0.2% weekly gain.
Mark McCormick, head of foreign exchange and emerging market strategy at TD Securities, observed that the jobs report, while “noisy,” was ultimately “soft enough to reinforce the positioning adjustment across FX.” He noted the initial dollar decline mirrored the drop in Treasury yields, indicating market expectations for another Federal Reserve rate cut this month. McCormick further suggested that the upcoming Consumer Price Index (CPI) report will be crucial for the December Fed meeting, but anticipates continued dollar weakness, presenting a buying opportunity in early 2025.
The November jobs report showed the unemployment rate edging up to 4.2% from 4.1% in the previous two months. This increase stemmed from weakness in household employment, which declined by 355,000 jobs, continuing a downward trend from October. Conversely, nonfarm payrolls expanded by 227,000 jobs, following an upwardly revised 36,000 increase in October. While exceeding the Reuters poll forecast of 200,000 jobs, the average monthly job growth over the past four months remained below the level considered necessary to accommodate population growth.
Some analysts, citing Bloomberg’s forecast of 225,000 jobs, argued that the payrolls figure barely surpassed expectations, implying the Fed might not pause its easing cycle. However, the dollar pared losses after the University of Michigan’s December consumer sentiment survey exceeded forecasts, with one-year inflation expectations rising to 2.9% from 2.6%.
The dollar index, measuring the greenback against six major currencies, climbed 0.3% to 106, recovering from a near three-week low. The dollar also appreciated against the Swiss franc, gaining 0.1% to 0.8786 franc.
Following the payrolls report, U.S. rate futures indicated an 85% probability of a 25 basis point rate cut by the Fed this month, up from 70% pre-data. Conversely, the likelihood of a pause decreased to 15% from 30%.
James Knightley, chief international economist at ING, anticipates a 25-bp rate cut by the Fed to shift policy from restrictive to neutral. He expects a signal of slowing rate cuts, with a potential pause in January. However, Knightley cautions that a higher-than-expected core CPI print next week could alter this outlook. He suggests a 0.25% to 0.3% rise in core CPI would likely support the December rate cut.
In other currency news, the dollar strengthened against South Korea’s won following reports of a potential martial law declaration. The dollar was up 0.4% at 1,422.7 won. Meanwhile, China’s yuan remained largely stable against the dollar but faced its tenth consecutive weekly loss amid concerns over potential new U.S. tariffs. The dollar traded at 7.2843 yuan in the offshore market, a 0.3% increase.
