Dollar Weekly Overview 5 - 10 JAN

The dollar settled in green territory on Friday following upbeat labor market data in the United States, which boosted expectations for future rate hikes by the Federal Reserve.

The US dollar index, which measures the greenback against six major currencies, was trading 0.03 percent higher at 89.06 by the time of this writing.

The Labor Department said nonfarm employment in the US grew by 200,000 jobs last month, while the unemployment rate remained unchanged at a 17 year low of 4.1 percent.

Attention was also directed to average hourly earnings, which increased 0.3 percent from the prior month and 2.9 percent in the twelve months to January.

Higher wages are typically associated with higher consumption, which after all tends to increase inflationary pressure, one of Fed’s most important factors to justify rate adjustments.

Last week, the Federal Open Market Committee announced it will be keeping its benchmark rate in a range between 1.25 and 1.50 percent. Analysts believe rate hikes will begin once Jerome Powell officially takes over as Federal Reserve Chairman.

During its December monetary policy encounter, the US regulator said it will probably raise interest rates in three occasions this year.

A rising interest rates environment tends to benefit the dollar as it increases its demand across the market, while putting safe-haven assets under pressure.

In the next few days, we expect high volatility for US dollar operations, with focus in Washington and its deadline to negotiate an spending bill and a debt ceiling. Otherwise, a second government shutdown might be on its way.

A government shutdown means the government can’t pay salaries to a large portion of public workers, which results in a widely extended suspension of services across the country. Despite the severity of the matter, history shows markets have always recovered well after them.

Fort Financial Services