US Dollar Weakens due to Data Shows U.S. Wage Growth
The US dollar is on track for its 6th week of subsequent decline and for its lowest weekly drop since July last year as U.S. employment report showed a lower U.S. wage growth. The reports indicate that there was a smaller rise in wages in January this year than expected, despite strong job gains. This development is likely to make the Federal Reserve take a break from raising interest rates this year.
The greenback, also known as U.S. paper dollar, has struggled to maintain its relevance amid concerns about the recently inaugurated president’s preference for a weak dollar. The U.S. paper dollar posted its worst month in percentage terms since 1987.
So far this week, the dollar continues to hit lower records. For instance, on Friday last week, it was down by 2.3% against the Japanese yen. This unhealthy record proves that the currency is on track for its worst performance since July last year.
Further compounding the US dollar's weakness this year was last week’s report which shows that last month’s non-farm payrolls were up by 227,000 jobs. This is the largest increase in four months. Contrary to this gain, the unemployment rate rose to 4.8 percent and wages saw a modestly increase. This shows that there was still some looseness in the labour market something that will keep inflation in check.
According to the report released by CME Group's FedWatch, Fred fund futures priced in a little or no chance of a rate increase in March on Friday last week after the release of jobs data. Instead, rate futures have priced in a June increase, with a chance of more than 60%.
BNY Mellon’s senior global markets strategist, Marvin Loh said, “"Tempered Fed anticipations are the biggest market advice we get from the report.”
"This is not to mean that we interpret this report as showing a weaker US employment situation, but just the presence of more slack than the headline unemployment rate would point at. And the less aggressive rate increase profile feeds into a weaker dollar," Mr Marvin added.
Average hourly earnings increased by 0.1%, which is a lower rate compared to the market's projected rate of around 0.3 percent. The report also shows that there was also a downward trend in the last year’s December wage growth.
On Monday this week, the dollar index, which tracks the US paper dollar versus the top six currencies, dropped by 0.1% to 99.666?
Against the Japanese yen, the US dollar was down 0.3% at 112.46 Japanese yen. Meanwhile, the euro was up by 0.2% against the US dollar at $1.0784.
January's United States non-manufacturing index was recorded at 56.5, slightly lower that the market’s projected 7.0.
However, According to the report released by High-Frequency Economics, the number remained higher than the 54.9 average for the whole of last year.
"This reading is a little lower than expected but still a little bit strong. This data indicates that there is a positive upward momentum," said Mr Jim O'Sullivan who works as the chief economist at High-Frequency Economics.