Slower Job Growth, Wage Increase in Private Sector
ECB Rate Cut Speculations Weaken Euro Against Dollar
U.S. Dollar Holds Firm Amid Labor Market Data and Rate Cut Speculations
The U.S. Dollar maintained its strength, reaching a two-week high against major currencies as investors scrutinized the latest labor market data and awaited Friday’s key jobs report. This robust stance of the dollar comes amidst fluctuating U.S. Treasury yields, with the 10-year Treasury note marginally increasing to 4.17% and the 2-year yield rising to 4.589%.
Private Sector Employment and Wage Trends
The ADP National Employment Report showed a slower increase in private sector employment for November, with 103,000 jobs added, below both the previous month’s revised figure and the Dow Jones estimate of 128,000. Wages saw a 5.6% year-over-year increase, indicating the smallest growth since September 2021. The findings suggest a cooling labor market, with job-changers experiencing the lowest wage increase premium in three years.
Impact on the Dollar
These labor market developments have prompted investors to reassess the extent of potential U.S. interest rate cuts in 2023. Current market predictions lean towards a 60% likelihood of a Federal Reserve rate reduction by March, accompanied by an anticipated 125 basis points cut throughout the year. These expectations, however, remain subject to change based on upcoming Federal Reserve communications.
The Euro and ECB Rate Cut Expectations
The euro’s weakness against the dollar further underscored the dollar’s strength. Anticipations of an early European Central Bank rate cut, fueled by dovish central bank remarks and soft economic data, have pressured the euro lower. Markets are now factoring in a substantial probability of ECB rate cuts starting in March, with significant reductions expected by the year’s end.
This dynamic in the currency market, coupled with the forthcoming labor data and central bank decisions, continues to shape the near-term outlook for the U.S. dollar, reflecting its dominant position in global financial markets.
Daily US Dollar Index (DXY)
The US Dollar Index (DXY) is currently exhibiting a neutral to slightly bearish sentiment. Its current price of 103.908 is marginally above the 200-day moving average of 103.568, suggesting a tentative support level. However, the index remains below the 50-day moving average of 105.311, indicating potential resistance to upward movement.
The current price hovers just above the minor support level of 103.572, but with the main support level at 102.853, there’s room for potential downward movement.
The index’s positioning below the 50-day moving average and close to the minor support level suggests cautious market sentiment, leaning slightly towards bearish in the short term.
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.