Global Themes

The U.S. dollar firmed ahead of the month’s most important look at America’s job market. The dollar rose against most rivals, rebounding from multimonth lows. How much traction the buck receives from its modest gains should hinge on today’s snapshot of the U.S. labor market. The world’s biggest economy likely added around 190,000 jobs in December and maintained a 4.1% jobless rate, the lowest in 17 years. Much of the dollar’s malaise of late has stemmed from America’s sluggish rate of inflation. That puts heightened focus on how wages fared during the final month of 2017. Better pay raises would offer evidence of inflation firming from a core rate of 1.5% toward the Fed’s 2% goal, a scenario that could brighten the dollar’s outlook. Slower inflation in Europe weighed on the euro, while Canada’s dollar retreated from October highs ahead of the nation’s jobs report. 


The dollar looked set for its third decline in as many weeks after America’s monthly jobs report underwhelmed. The U.S. added 148,000 jobs in December, a respectable amount, but one well below forecasts of 190,000. Unemployment stayed at 4.1%, the lowest since 2000. Wages rose a tick to a 2.5% annual pace. While not a poor jobs report, the pedestrian pace of hiring and wage rises won’t offer much to knock the dollar out of its funk, as the data keep the Fed on an incremental pace of interest rate hikes. 


Canada’s dollar soared to new multimonth highs after the nation’s jobs report smashed forecasts and strengthened the case for area interest rates to rise as soon as this month. Canada’s job market went on another hiring spree in December when it netted 78,600 workers. That easily quashed forecasts of a gain of only 1,000. Strong hiring knocked unemployment to 5.7%, the lowest in years, compared to forecasts of a 6% print. Still, there was a perceptible fly in the ointment as most of the hiring came from the less meaningful part-time workers. The Bank of Canada issues its first interest rate decision of the year on Jan 17.


The pound played it mostly steady ahead of America’s monthly jobless report. Mixed data from the U.K. this week largely offset, leaving sterling little changed and biased toward the top of a range, its highest in 3 ½ months. The pound has benefited from broad-based dollar weakness and negotiations that have kept the U.K. on track to exit the EU early next year. The pound next week will take fundamental cues from Wednesday data on factory growth and trade.


The yen slipped to one-week lows as the dollar pared declines ahead of today’s U.S. jobs report. Upbeat market sentiment after the Dow index closed above 25,000 for the first time weighed on lower-yielding, safer bets like the yen. 


The euro softened below four-month peaks after inflation across the 19-nation bloc moderated. Consumer prices softened to a 1.4% annual rate in December, an expected move, from 1.5% the month before. Europe’s core rate of inflation, seen less volatile since it subtracts food and energy prices, inched up to 1.1% but remained far below the ECB’s just below 2% sweet spot. Lower inflation could help to limit strength in the single currency. Next to impact the euro will be U.S. jobs data today and Europe’s fresh reading of unemployment on Jan 9.

Deliver the Daily Currency Market Analysis to my Inbox

Published five days a week, this newsletter provides day-to-day trends and activities affecting the market in easy-to-understand snapshots.