Articles
US Dollar in the red ahead of Fed after ADP miss
369275 January 31, 2024 22:35 FXStreet Market News
- The US Dollar retreats after a false bullish pop higher, ahead of Fed meeting.
- Traders got caught by surprise on a downbeat ADP number.
- The US Dollar Index is hovering around the 200-day SMA and remains stuck in its pattern.
The US Dollar (USD) is facing its first main event of 2024 with the US Federal Reserve rate decision for January. All eyes will be on the Federal Reserve Chairman Jerome Powell and what he will deliver to the markets. Although no rate changes are expected, the tone of the statement from Powell can still be either hawkish or dovish and could dampen hopes for a quick rate cut further with a repricing for a (stronger) US Dollar at hand.
On the economic front, a perfect menu lies ahead of the main event this Wednesday evening. Traders already had the ADP Employment Change, which was coming in substantially lower than expected. The Chicago Purchasing Managers’ Index for January is due to be released as well, with traders seeking confirmation of the number jumping out of contraction territory (over 50), like the PMI prints last week. Such a move would help confirm a recovery and soft landing.
Daily digest market movers: ADP miss on all flanks
- The Mortgage Bankers Association (MBA) has released its weekly number of mortgage applications, heading from 3.7% to -7.2%.
- The ADP Employment Change report went from 164,000 revised down to 158,000, with the January number coming in at 107,000. Far below the estimates of 145,000.
- The Employment Index for the fourth quarter went from 1.1% to 0.9%.
- At 14:45 the Chicago Purchase Managers Index (PMI) for January will be released. The prior figure reflected contraction at 46.9, with 48 expected this time. Any number above 50 would mean growth.
- The Federal Open Market Committee (FOMC) is set to release its first rate decision for 2024:
- At 19:00 GMT the Fed will release its rate decision with a joint written statement.
- Around 19:30 US Fed Chairman Jerome Powell will take the stage and further go into details on how the Fed sees current conditions in the US.
- Although a rate change is not expected, the meeting could still hold a hawkish or dovish undertone which could send the Greenback respectively higher or lower in the US Dollar Index.
- Equity markets are lower after missed earnings from AMD and Alphabet. Add in there the miss on expectations for the Chinese Manufacturing PMI, and risk appetite looks to be very mild this Wednesday.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 97.9% possibility for an unchanged rate decision this Wednesday evening, with a slim 2.1% chance of a cut.
- The benchmark 10-year US Treasury Note trades near 4.01% and is at the lowest level for this week ahead of the Fed rate decision.
US Dollar Index Technical Analysis: ADP sign on the wall for Fed?
The US Dollar Index (DXY) might find its catalyst this Wednesday. For nearly two weeks now it has been unable to trade away from both the 55-day (103.02) and the 200-day (103.54) Simple Moving Averages despite several false breaks and both MAs getting all chopped up.
Although the Fed meeting this Wednesday is unlikely to usher in any rate changes, the outcome could still favor the Greenback if Powell delivers a hawkish statement to the markets. Such a move would see market expectations pushback on when the Fed will make its first rate cut.
In such a scenario the DXY will be able to break away from the 200-day SMA. Look for 104.36 as the first resistance level to the upside, in the form of the 100-day SMA. If that gets breached as well, nothing will hold the DXY back from heading to either 105.88 or 107.20 – the high of September.
On the other hand, with the repetition of another break above the 200-day SMA, yet again, a bull trap could also form if prices then start sliding below the same moving average. This would see a long squeeze, with US Dollar bulls being forced to start selling around 103.10 at the 55-day SMA. Once below that, the downturn would be open to 102.00.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
US 10-year yields fall below 4%
369274 January 31, 2024 22:33 Forexlive Latest News Market News
US 10 year yields
Softer data on jobs and wage growth have pushed US 10-year yields below 4%. They briefly cracked that level earlier before bouncing but a second push lower has followed the data and quarterly Treasury borrowing numbers that didn’t meaningfully boost long-dated issuance.
Is that it for the bounce? Earlier this month, US 10s rose to 4.2% after touching 3.8% in late December but yields have moved meaningfully lower for three days. The dip started on Monday after the Treasury announced lower borrowing for Q1 and Q2.
The next move hinges on the Fed. There’s a line of thinking that Powell and the FOMC won’t be as dovish as hoped and push back on the 40% chance of a hike priced in for March. However there are others who believe that by holding rates higher for longer, the Fed will ultimately snuff out growth, leading to deeper cuts and lower inflation later.
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Silver Price Forecast: XAG/USD consolidates slightly above $23 ahead of Fed policy
369272 January 31, 2024 22:33 FXStreet Market News
- Silver price fails to get a directional steer despite downbeat US private Employment data.
- The USD index witnesses a sell-off as expectations for rate-cut in March by the Fed have slightly improved.
- Focus remains on the Fed’s monetary policy.
Silver price (XAG/USD) trades sideways slightly above the $23.00 resistance in early New York session on Wednesday. The white metal fails to get a directional steer even though the United States Automatic Data Processing (ADP) has reported weaker-than-projected Employment data for January.
The US ADP has reported that 107K workers were hired by private employers against expectations of 145K and the prior reading of 158K. As per the CME Fedwatch tool, expectations for rate-cut in March have increased slightly above 50% after the release of the downbeat US Employment data.
The US Dollar Index (DXY) has witnessed an intense sell-off, dropped to near 103.20. 10-year US Treasury yields have dropped to near 4.02%.
Going forward, investors await the monetary policy decision by the Federal Reserve (Fed). The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50% for the fourth straight time. Investors would focus on whether slowing demand for labor would impact the outlook on interest rates by Fed policymakers. Dovish signals for March monetary policy meeting would strengthen the appeal for the Silver price bulls.
Silver technical analysis
Silver price has strengthened after delivering a decisive break above the downward-sloping trendline plotted from December 3 high at $25.92. The white metal is expected to find immediate resistance near $23.53. The near-term appeal for the Silver price has turned bullish as it is sustaining above the 50-period Exponential Moving Average (EMA), which trades around $22.90.
The 14-period Relative Strength Index (RSI) has shifted into the bullish range of 60.00-80.00, which indicates that momentum has leaned towards bulls’ side.
Silver four-hour chart
Eurozone HICP Preview: Forecasts from six major banks, inflation rate to fall
369271 January 31, 2024 22:17 FXStreet Market News
Eurostat will release a first flash estimate of Eurozone Harmonised Index of Consumer Prices (HICP) data for January on Thursday, February 1 at 10:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks regarding the upcoming EU inflation print.
Headline Eurozone inflation is expected at 2.8% year-on-year vs. 2.9% in December, while core inflation is expected to ease two ticks to 3.2% YoY.
Commerzbank
The inflation rate excluding the often highly volatile energy, food, alcohol and tobacco prices is likely to have fallen further from 3.4% to 3.2%. We expect headline inflation rate to fall from 2.9 % to 2.6 %.
Deutsche Bank
We expect the headline Eurozone index to come in at 2.81% YoY (2.9% in December) and core at 3.27% (3.4%). We continue to see inflation easing further and settling around the target in the medium term, with headline averaging 2.1% YoY in 2024 and 2.3% YoY in 2025.
ABN Amro
Eurozone HICP inflation is expected to have stabilised at 2.9% in January. Core HICP inflation, in contrast, is expected to have declined in January, as the upward impact of past rises in energy prices is petering out. On top of that underlying inflationary pressures are easing due to the economic weakness that started in 22Q4 and has continued throughout 2023.
SocGen
The Euro Area January flash HICP is likely to print unchanged at 2.9% YoY, with core 0.3pp lower at 3.1% YoY. There is more uncertainty than usual in these forecasts, given the annual weighting changes.
Citi
Headline Euro Area CPI YoY (January flash) – Citi Forecast 2.5%; Prior 2.9%; Core YoY CPI, prior 3.4%. The January print is hard to predict (given seasonals, regulated price changes, the unwind of energy interventions, new weights), This sets up for a potentially oversized reaction this week.
TDS
Full ArticleWe look for EZ HICP inflation to edge down to 2.8% in January, reversing a touch of December’s jump. Core inflation likely fell to 3.2% YoY. New HICP weights should add some upside pressure on the print, as the weight of the energy component should come down quite notably – thus removing some disinflationary pressure on headline inflation. The end of German energy subsidies, higher electricity network fees, and an increase in restaurant VAT also add upside risk. That said, we expect the slowdown in core momentum to continue.
Worldcoin offices in Hong Kong hit by investigation by Office of the Privacy Commissioner
369270 January 31, 2024 22:17 FXStreet Market News
- Worldcoin project’s six office premises in Hong Kong were investigated according to a court warrant.
- Hong Kong’s independent body PCPD proactively launched an investigation into Worldcoin citing data privacy risks.
- PCPD called on the public to be more vigilant about the Worldcoin project since it gathers sensitive personal data.
The Office of the Privacy Commissioner of Hong Kong has investigated Sam Altman’s Worldcoin project’s six office locations. The independent body alleged “serious personal data privacy risks,” and warned users to remain vigilant about the Worldcoin project.
Also read: Altcoins surge in crypto comeback: Bittensor, Helium, and Solana lead speculative gains
Worldcoin offices under investigation in Hong Kong
Samuel Altman’s Worldcoin project’s offices were investigated by Hong Kong’s Office of the Privacy Commissioner on Wednesday.
Following a court order, the independent body investigated six premises in Hong Kong, located in Yau Ma Tei, Kwun Tong, Wan Chai, Cyberport, Central and Causeway Bay. The Privacy Commissioner’s office declared that its operation to investigate Worldcoin involves serious data privacy risks. Since the Worldcoin project collects sensitive personal data, it likely violates the provisions of the Privacy Ordinance.
Chung Liling, Privacy Commissioner for Personal Data called on users to be vigilant about the project and asked citizens to carefully protect sensitive personal data and refrain from casually participating in activities that require sensitive personal data.
The Worldcoin project has been the subject of investigations in several countries worldwide. According to data from MIT Technology Review, regulators in at least four countries have already launched investigations into the project while citing concerns with its privacy practices.
The legality of Worldcoin’s biometric data collection remains unclear. Upon registration users are offered 25 WLD tokens on completing an iris recognition test, Worldcoin says is designed to differentiate legit human users from robots. The French government has launched a probe into the project, citing concerns about the use of such biometric data. Worldcoin is also being investigated by a German data protection agency, the Information Commissioner’s Officer in the UK and Kenya’s Office of Data Protection.
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US dollar sags after wage data, jobs and Treasury borrowing data
369269 January 31, 2024 22:05 Forexlive Latest News Market News
The US dollar is under pressure after a trio of somewhat dovish announcements today:
- ADP employment was below estimates at 107K compared to 145K expected
- The Treasury increased long-dated auction sizes in-line with estimates but not as much as feared
- Q4 US wage data showed 0.9% growth compared to 1.0% expected
The numbers hit as the Fed begins debating in the second day of the FOMC meeting. It should give policymakers some comfort that the economy is slowing and that wage gains won’t trigger another round of inflation.
The dollar has fallen around 20 pips across the board with the euro taking advantage to run to a session high of 1.0863.
EURUSD 10 mins d
That still leaves the euro down around 1.5 cents this month.
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Rising likelihood of a Trump victory in the US election could spark Mexican Peso weakness – Standard Chartered
369268 January 31, 2024 21:45 FXStreet Market News
Economists at Standard Chartered analyze Mexican Peso’s (MXN) outlook ahead of upcoming election cycles in both Mexico and the US.
Election cycles to complicate the monetary policy outlook
While Banxico is likely to emphasise its independence from politics, increased financial-market volatility could prompt Banxico to take a more cautious approach towards cutting rates, by avoiding rate cuts larger than 25 bps or even pausing between meetings.
Election noise in Mexico is likely to pick up after Q1, and a potential landslide victory by Morena, especially if the party takes a super-majority in either chamber of Congress, could give rise to market concerns about increased antibusiness policies.
Full ArticleMeanwhile, the rising likelihood of a Trump victory in the US election in November could spark Mexican Peso weakness as well as a weaker growth outlook for Mexico, complicating Banxico’s easing cycle.
Oil sinks over 1% with US ADP miss on estimates and Venezuela in focus
369266 January 31, 2024 21:45 FXStreet Market News
- WTI Oil popped to nearly $80 as the US threatened to reimpose sanctions on Venezuela.
- Oil is still finding its way to importers through other producers.
- The US Dollar Index firms ahead of the first Federal Reserve rate decision for 2024.
Oil prices are seeing a pickup in volatility on Wednesday, jumping towards the $80 psychological level, as the US said it stands ready to issue new sanctions against the Venezuelan Oil industry. With this move, The US appears to be leveraging political democratic elections in the Latin American country, after the leader of the opposition party got blocked by a court decision, barring Maria Corina Machado from the election.
Meanwhile, the US Dollar Index (DXY, is stuck in a tight technical range that has been underway for nearly two weeks now. With the first US interest-rate decision from the US Federal Reserve due later on Wednesday, markets will be plucking the speech from Chairman Jerome Powell for clues if March or rather June is the right moment for a first rate cut. The US Jobs Report, due on Friday, is also expected to cause a pickup in volatility..
Crude Oil (WTI) trades at $76.90 per barrel, and Brent Oil trades at $81.70 per barrel at the time of writing.
Oil news and market movers: OPEC vs US
- Saudi Arabia is considering reviving an Aramco share sale.
- Overnight numbers from the American Petroleum Institute (API) showed a drawdown of 2.49 million barrels last week.
- At 15:30 GMT, the Energy Information Administration (EIA) is due to release its weekly stockpile change number. Previous was a draw of 9.233 million barrels, while a much smaller draw of 217,000 is expected.
- Two tankers carrying Russian Oil have been reported to be on their way to India to offload their cargo.
- Saudi Arabia has cancelled its plans to look into a production increase. The news was not picked up amidst the COP28 headlines. However, the kingdom is refraining from jacking up production as the US has substantially scaled up its exports.
Oil Technical Analysis: support to hold for now
Oil prices tend to react to any possible disruption in the Oil market. US sanctions on Venezuela would trigger a supply deficit in the current market, sending oil prices up. This is something that the US really wants to avoid, which makes the US a barking dog that might not actually bite.
To the upside, resistance at $74 is in the rear view mirror and should act as support. Although price action came very near, $80 will not be easy to beat. Once $80 is broken, $84 is next on the topside.
The $74 level will act as immediate support on any sudden declines. The $67 level could still come into play as the next support as it aligns with a triple bottom from June. Should that triple bottom break, a new low could be close at $64.35 – the low of May and March 2023 – as the last line of defence.
US WTI Crude Oil: Daily Chart
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
US quarterly refunding announcement: Supply for next week $121 vs $121 billion expected
369265 January 31, 2024 21:40 Forexlive Latest News Market News
On Monday, the US announced less borrowing than the Treasury had previously forecast and bonds have been bid since with 10-years briefly falling below 4% earlier today. That esetimate was $760 billion compared to $811 billion forecast by the Treasury in October due to lower borrowing costs and higher tax receipts.
- 2 year $63b vs $63 billion expected
- 3-year $54b vs $53-$54 billion expected
- 5-year $64b vs $64 billion expected
- 7-year vs $40 billion expected
- 10-year $42b vs $42 billion expected
- 20-year $16b vs $16 billion expected
- 30-year $25b vs $25 billion expected
- Supply for next week $121b vs $121 billion expected
- Given current fiscal forecasts, Treasury expects to maintain bill auction sizes at current levels into late-March.
These ‘expectations’ are soft estimates from a limited number of sources.
The Treasury said it will conduct a limited amount of buyback operations in April and that it will modestly reduce short-dated bill auction sizes going into tax filing season.
There are no surprises here. There was some angst the Treasury would lean harder on the long end because that’s what they promised to do but Monday’s borrowing estimate dulled that fear.
Commentary in the minutes of the Treasury Borrowing Advisory Committee:
Deputy Director Katzenbach reviewed primary dealers’ expectations for coupon issuance. Primary
dealers generally expected increases in nominal coupon issuance
identical in magnitude and distribution to the increases implemented at
the November refunding; dealers also expected continued increases in
bill supply. Most
dealers expected that coupon size increases announced at the February
refunding would be the last needed in the near-term, while uncertainty
about the pace and duration of balance sheet normalization could be
addressed via changes in bill supply.
Debt
Manager Chisholm then discussed primary dealers’ 2024 outlook for money
markets and Treasury bill demand. Dealers broadly expected that the
Federal Open Market Committee (FOMC) will reduce policy rates during
2024; there was likewise a broad consensus among dealers that the
Federal Reserve would reduce the pace of SOMA redemptions in the coming
year. Dealers noted that, all else being equal, lower SOMA redemptions would reduce Treasury’s net privately-held borrowing needs. As
such, dealers anticipated this would likely result in fewer Treasury
bills being issued to private market participants, given the role of
bills as Treasury’s issuance “shock absorber.” By
contrast, dealers cautioned that lower short-term interest rates may
present headwinds for Treasury bill demand during 2024 by reducing the
relative attractiveness of money market funds and short-term
investments. However,
dealers expressed confidence that money market funds would not face
significant outflows and would continue to be a meaningful investor in
both Treasury bills and Treasury repurchase agreements throughout 2024.
Gold price remains upbeat ahead of Fed policy and employment data
369264 January 31, 2024 21:40 FXStreet Market News
- Gold price holds on gains ahead of Fed’s monetary policy announcement.
- The Fed is expected to deliver a steady interest rate decision while the future outlook on rates will be the main focus.
- US ADP showed private payrolls at 107K against projections of 145K.
Gold price (XAU/USD) clings to gains as the United States Automatic Data Processing (ADP) has reported a weaker demand for labor that what anticipated by the market participants. US private employers recruited 107K job-seekers in January, which were significantly lower than expectations of 145K and the prior reading of 158K. A slowdown in the labor demand is expected to scale up expectations for early rate-cuts by the Federal Reserve (Fed).
Market volatility is expected to remain escalated as investors await the monetary policy decision by the Fed. The Fed is expected to deliver a steady interest rate decision for the fourth time in a row. Investors will keenly focus on the bank’s guidance – future expectation – for interest rates, and that will probably direct action in the FX domain.
Amid easing price pressures, further quantitative tightening is not expected from the Fed, therefore, market participants will focus on “when and at what pace” the central bank will start reducing interest rates. Investors are anticipating that the Fed will commence the rate-reduction process from May.
Previous Fed meeting guidance was for 75 basis points (bps) of cuts in interest rates in 2024. The market has been focusing on expectations for early cuts, however, comments from individual policymakers have been advising for keeping interest rates elevated at least for the first-half of the year – until they become confident that the underlying inflation rate will return to the Fed’s 2% target in a timely manner.
Daily Digest Market Movers: Gold price holds gains ahead of Fed meeting
- Gold price trades closely to $2,040 as investors await the Federal Reserve’s monetary policy.
- As per the CME Fedwatch tool, traders are confident about the Fed keeping interest rates unchanged in the range of 5.25-5.50% at the meeting.
- This would be the fourth straight time the Fed has left interest rates steady.
- Price pressures in the United States economy are consistently declining, which have been refraining Fed policymakers from hiking interest rates further.
- Fresh commentary from Fed policymakers on the outlook of interest rates is of utmost importance as a steady monetary policy decision is largely expected.
- In the last monetary policy meeting, Fed Chair Jerome Powell as well as the Summary of Economic Projections (SEP), which contains the expectations of all members, guided a reduction in interest rates by 75-basis points (bps) in 2024, which boosted demand for risk-perceived assets significantly.
- Guidance for 75 bps rate cuts also led to expectations for Fed commencing rate-cuts from March but then failed to gather momentum due to resilient US economic data.
- Investors will be interested to see how the Fed will adjust its three rate-cut guidance in coming policy meetings.
- The CME Fedwatch tool indicates that the Fed will probably start the rate-cut campaign from May now (instead of March). Absence of dovish signals for May’s meeting would build pressure on the Gold price and will improve appeal for the US Dollar.
- This week, various US economic indicators are lined-up, which will keep investors busy. The ISM agency will release the Manufacturing PMI on Thursday, which will be followed by official Employment data, which will be released on Friday.
- On the global front, geopolitical tensions continue to provide a cushion to bullion. US President Joe Biden vowed to retaliate for aerial drone attacks on US bases near northeastern Jordan.
Technical Analysis: Gold holds recovery near $2,040
Gold price trades inside Tuesday’s trading range as investors patiently await the Fed policy decision for fresh guidance. The broader trend for Gold price is bullish. The precious metal is forming a Symmetrical Triangle chart pattern on the daily chart. This suggests a probable eventual breakout in the direction of dominant uptrend, although this type of triangle can break in any direction.
Near-term demand is strong as the asset is auctioning above the 20-day Exponential Moving Average (EMA), which trades around $2,030.
Momentum is still weak as the 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
US Employment Cost Index rises 0.9% in Q4 vs. 1% expected
369263 January 31, 2024 21:40 FXStreet Market News
- Employment Cost Index rose less than forecast in Q4.
- US Dollar Index stays in the red slightly below 103.50 after the data.
Compensation costs for civilian workers, the Employment Cost Index, rose 0.9% in the fourth quarter of 2023, the US Bureau of Labor Statistics reported on Wednesday. This reading followed the 1.1% increase recorded in the previous quarter and came in below the market expectation of 1%.
“Compensation costs for civilian workers increased 4.2% for the 12-month period ending in December 2023 and increased 5.1% in December 2022,” the BLS noted in its press release. “Wages and salaries increased 4.3% for the 12-month period ending in December 2023 and increased 5.1% for the 12-month period ending in December 2022.”
Market reaction
The US Dollar Index edged slightly lower after this report and was last seen losing 0.06% on the day at 103.35.
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