US dollars have been under pressure for several weeks now. The Fed’s plans to pursue rate cuts significantly dragged down the dollar after months of rate hikes had bolstered the currency. However, traders now believe they may have overestimated the certainty of rate cuts in the near future. While rate cuts remain possible, expectations have become more moderate.
With this shift in perspective, the American dollar rate has found stable ground this Friday. Overall, the dollar has had a phenomenal performance this week, potentially its best since last July, reflecting a positive shift in the best dollar rate.
The main reason for this tempering of expectations is the recent US payroll data. Economists had forecast the creation of 170,000 jobs in December, following 199,000 in November. The impact of this data release on the markets remains to be seen.
Employers have been hiring more people than expected in December. This strength in the US labor force suggests that the central bank may not need to rush in making rate cuts.
The effect on the US dollar has been significant. It has overcome its recent weakness, making gains against several currencies. Over the week, it has risen by 1.1%, reaching 102.51 as of Friday, indicating a favourable American dollar rate.
Inflation has indeed decreased over the last few months, but not to the extent the Fed had targeted. Core PCE inflation has fallen to about 3%, while the Fed’s goal was 2%.
As a result, some analysts conclude that rate cuts may be premature, suggesting that the central bank might need to maintain its current stance for a while longer, impacting the best dollar rate.
Meanwhile, 10-year Treasury yields have bounced back up, surpassing the 4% level.
Several major currencies have weakened against the dollar in response. The yen, typically sensitive to the dollar, is one example. The euro also declined, falling by 0.08% and 0.9% over the week, further influencing the best US dollar rate.