The US dollar rose on Wednesday, moving away from its lowest level since early October as traders considered the Federal Reserve's interest rate path following weak labor market data.
At 11:55 a.m. Saudi time, the dollar index, which tracks the performance of the US currency against a basket of six other currencies, rose 0.4% to 98.200, after hitting its lowest level since the beginning of October earlier in the week.
The index has fallen by more than 9% this year, heading towards its biggest annual decline since 2017.
slowdown in the US labor market
Data released on Tuesday showed that U.S. nonfarm payrolls rose by 64,000 jobs in November, exceeding economists' expectations, but this followed a sharp loss of 105,000 jobs in October and was accompanied by a rise in the unemployment rate to 4.6%, the highest since 2021.
The figures pointed to a slowing labor market and raised uncertainty about Federal Reserve policy.
However, analysts at ING said in a note that yesterday's joint release of jobs data for October and November did not change the Federal Reserve's narrative that the risks to the US labor market lie on the downside.
While Chairman Powell said data releases would be affected by the government shutdown, he also spent considerable time identifying the unemployment rate as the best indicator of the imbalance between supply and demand in the U.S. labor market. The current rate of 4.6% is higher than the median rate (4.5%) that Federal Open Market Committee members project by the end of 2025.
The British pound falls after weak inflation data.
In Europe, the pound/dollar pair fell 0.8% to 1.3322 after UK inflation data came in weaker than expected, raising expectations of an interest rate cut by the Bank of England on Thursday.
Annual inflation for UK consumer prices rose to 3.2% in November, down from 3.6% in the previous month and the lowest figure in eight months.
The Bank of England’s Monetary Policy Committee voted 5-4 to keep interest rates unchanged last month, and signs of falling rates could tip the scales toward what is likely to be a close vote in favor of easing monetary policy.
A 25 basis point cut would reduce borrowing costs to 3.75% from 4%, the lowest rate since the beginning of February 2023.
The euro/dollar pair fell 0.3% to 1.1717, with the single currency edging down slightly but remaining close to its 12-week high touched in the previous session ahead of the European Central Bank's policy decision later this week.
Eurozone consumer price index data for November is due later in the session, but it is unlikely to influence central bank policymakers to keep interest rates at 2% for the fourth consecutive meeting on Thursday.
Analysts at ING said: “The hawkish comments from ECB President Isabel Chappell reverberated through the foreign exchange and interest rate markets last week. If she proves exceptionally hawkish on Thursday and the eurozone growth forecast is revised insufficiently upward, the euro could be hit.”
The yen relinquishes its gains ahead of the Bank of Japan's decision.
In Asia, the dollar/yen pair rose 0.5% to 155.54, with the yen weakening ahead of the Bank of Japan's policy decision later this week.
The central bank is widely expected to raise interest rates, as policymakers respond to signs of more sustained inflation and improved wage growth.
An interest rate hike would represent a further step away from Japan's ultra-loose monetary policy and could provide support for the yen.
The dollar/Chinese yuan pair rose 0.1% to 7.0457, while the Australian dollar/US dollar pair fell 0.2% to 0.6619, with risk sentiment affected by weak stocks on Wall Street.
