| The dollar rose sharply during the Jan. 10 trading session after data showed the world’s largest economy created more jobs than expected last month. (Source: Globaltrademag) |
The USD rose sharply during the January 10 trading session, after data showed the world’s largest economy created more jobs than expected last month. This data reinforced expectations that the US Federal Reserve (Fed) would suspend the interest rate reduction cycle at its January 1 policy meeting.
The rise in the price of the dollar began after a report from the US Department of Labor showed that the country’s economy created an additional 256.000 jobs in December 12, far more than experts predicted an increase of 160.000 jobs. However, job creation in November was revised downward, to 212.000.
At the same time, the unemployment rate fell to 4.1%, compared to a forecast of 4.2%, and the average hourly wage increased by 0.3% last month after increasing by 0.4% on the 11th. Compared to the same period of 2023, salaries increased by 3.9% in December. 12, after increasing 2024% in November.
Ms Jane Foley, head of forex trading strategy at Rabobank in London, said the December jobs data clearly made an urgent cut in interest rates by the Fed unnecessary. Rabobank estimates that the Fed will cut interest rates only once in 12. However, according to it, if US President-elect Donald Trump implements his policy quickly, the Fed will not cut interest rates again.
During his election campaign, Mr. Trump pledged to impose tariffs, cut taxes and carry out mass deportations of undocumented immigrants. All of these policies are expected to lead to a further rise in inflation.
According to LSEG estimates, after the above US employment data, the market assumes that the Fed will definitely end the monetary policy easing cycle at this month’s meeting. The market also expects the Fed to cut interest rates only slightly in 2025.
The greenback also extended gains after a University of Michigan consumer confidence report showed U.S. consumer inflation forecasts for next year and beyond jumped in January.
This session, the USD at one point hit its highest level since July against the Japanese Yen after the above data. Over the last 6 weeks, there have been 5 weeks where the value of the USD increased against the Yen.
At the same time, the USD index measuring the strength of the “greenback” against a basket of major currencies reached its highest level since November 11, recording the sixth consecutive week of increase. This is the longest streak of increases since 2022.
On the contrary, the euro fell at one point to its lowest level since October 10 against the dollar. A survey carried out by Reuters This week, many currency experts are predicting that the euro will reach parity with the dollar in 2025.
-This session, the euro fell below 1.03 euro per USD, reaching its lowest level since October 1, and also marking the second consecutive week of decline in the price of the euro. This development pushed the euro close to parity with the dollar, a step with important psychological significance.
This price level is similar to that of summer 2022, when the euro not only touched but also fell below parity with the dollar.
Around this time, the Fed began aggressively raising interest rates, the European Central Bank’s (ECB) delayed response, and Europe’s natural gas crisis created “a perfect storm for this common currency.” “The perfect storm” is an economic term that describes the convergence of the worst things happening at the same time.
Today, the euro faces increasing pressure from Mr. Trump’s tax plan, differences in the monetary policies of the Fed and the ECB, as well as geopolitical instability.
Although the euro has weakened significantly since Donald Trump’s victory in the November 11 US presidential election, the impact of the economic policies of President-elect Trump’s administration has not yet been fully demonstrated.
In the context where the market is carefully monitoring the political announcements of the administration of President-elect Trump and the next direction of central banks, the possibility of a euro/USD parity in the first half of 2025 is very present.
Whether the euro continues to fall to a new low will depend on the extent of US policy changes and Europe’s ability to cope with these impacts.
In other currencies, the pound sterling fell to its lowest level since November 11 against the dollar, continuing the previous session’s decline accompanied by a sell-off in British government bonds due to concerns about the financial situation of the government of this country.
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