JANUARY 6, 2025
The dollar could fall sharply if the U.S. nonfarm payrolls report on Friday misses expectations, Ebury economist Enrique Diaz-Alvarez says in a note. The dollar looks “extremely expensive” as markets are pricing in just one-and-a-half interest-rate cuts from the Federal Reserve this year, considerable U.S. economic strength and inflation pressures, he says. This leaves the currency vulnerable to a significant pullback if the data miss expectations. The DXY dollar index falls 0.6% to 108.244 after reaching a two-year high of 109.533 on Thursday. (renae.dyer@wsj.com)
Dollar Strengthens a Bit As Trump Denies Limiting Tariffs
1046 ET – Trump denies on social-media that tariffs will be pared back, which gives some strength to the U.S. dollar. The greenback remains weaker versus most major currencies, but is off early lows. The Washington Post reported that tariffs could be limited to critical imports, citing people familiar with the matter. Trump, on Truth Social, denied the report. The WSJ Dollar Index, which was down nearly 1% on the Post article, recovered after Trump’s response and now falls 0.4%. The greenback weakens around 0.7% versus the euro and the pound and rises 0.2% versus the yen.(paulo.trevisani@wsj.com; @ptrevisani)
Sterling Could Fall Briefly But Outlook Remains Positive
1453 GMT – Sterling is at risk of falling in the near-term after the Bank of England’s latest policy decision signaled a less cautious approach to cutting interest rates, Ebury economist Enrique Diaz-Alvarez says in a note. The BOE left rates unchanged in December but three members unexpectedly voted for a rate cut, creating a “near-term downside risk” for sterling, he says. The outlook for sterling remains positive in the longer run, however. “A decent macroeconomic performance, the likelihood of better relations with the EU under the U.K. Labour government and a still very attractive valuation, historically speaking, should continue to support sterling.” (renae.dyer@wsj.com)
Dollar Weakens Ahead of U.S. Labor Data
0922 ET – The dollar weakens, apparently because of indications that tariffs promised by Trump could be more limited, according to a BBH analysis. This week, a bevy of U.S. labor data is expected to corroborate the narrative that employment conditions are easing, but not too fast. In that case, the Fed wouldn’t need to hurry to cut interest rates and Treasury yields would remain elevated, bolstering the greenback. Both the WSJ Dollar Index and the ICE’s DXY gauge fall nearly 1%. The dollar weakens 1% against the euro and the pound and 0.4% versus the yen. (paulo.trevisani@wsj.com; @ptrevisani)
Euro Rises Against Weaker Dollar After German Inflation Data
1343 GMT – The euro rises to a one-week high against a weaker dollar after German inflation data exceeded expectations. The annual rate of inflation rose to 2.6% in December from 2.2% in November, provisional data showed. Economists in a WSJ survey expected 2.4%. The euro rises 1.3% to a high of $1.0435 after the data, from $1.0412 berforehand. However, the move looks largely driven by the dollar’s decline after reports U.S. President-elect Donald Trump could soften his stance on proposed trade tariffs. The Washington Post reported Trump’s aides are considering global tariffs that only cover imports critical to national or economic security. Trump has previously threatened universal tariffs of up to 10% to 20% on all imports.(renae.dyer@wsj.com)
Dollar Rally Could Lose Steam This Week
1245 GMT – The dollar could turn lower this week as a return of normal market conditions allows it to reconnect with a slight deterioration in its interest-rate advantage over the holiday period, ING’s Francesco Pesole says in a note. However, the proximity to Donald Trump’s January 20 presidential inauguration and the Federal Reserve’s cautious stance on cutting rates should keep any dollar correction short-lived, he says. “Technical factors argue for some correction or at least loss of momentum for the dollar, but we expect strong buying interest in the dips.” The DXY dollar index could still rise to 110.000 in coming weeks, he says. The DXY falls 0.9% to 107.998, having reached a two-year high of 109.533 on Thursday. (renae.dyer@wsj.com)
Canadian Dollar Rises After Reports PM Trudeau Could Resign
1002 GMT – The Canadian dollar rises following media reports that Canada’s Prime Minister Justin Trudeau could announce that he will resign, potentially as early as Monday. The appreciation is modest, however, compared to the currency’s sharp depreciation in December, ING’s Francesco Pesole says in a note. This signals “only very cautious optimism that this development can lower the risk of Canada being hit by U.S. tariffs.” The Canadian dollar is likely to be very sensitive to any political news and implications for U.S.-Canada trade relations in coming days, he says. Trudeau has previously said Canada would retaliate should U.S. President-elect Trump follow through on a pledge for a 25% tariff on Canadian imports. USD/CAD falls 0.5% to 1.4381. (renae.dyer@wsj.com)
Euro Rises After Eurozone Services PMI Revised Higher
0927 GMT – The euro rises after the eurozone services purchasing managers’ index was revised higher for December. The final PMI estimate was revised to 51.6 from a flash reading of 51.4 and is comfortably above November’s 49.5. A level above 50 signals expansion in sector activity while a reading below that indicates contraction. The survey also showed services prices continued to rise at a quicker rate in December. This means the European Central Bank should “remain cautious and make only small interest rate cuts in the first quarter of 2025,” Hamburg Commercial Bank economist Cyrus de la Rubia says in the survey’s press release. The euro rises to a high of $1.0370 after the data, up 0.6% on the day, from $1.0350 beforehand, FactSet charts show. (renae.dyer@wsj.com)
Norwegian Krone’s Recovery Is Likely to Be Slow
0910 GMT – The Norwegian krone looks too weak but it will probably only recover slowly unless Norway’s real interest rate adjusted for inflation improves significantly, Commerzbank’s Antje Praefcke says in a note. The Norges Bank is one of the few G-10 central banks that hasn’t cut rates yet but inflation remains stubbornly above its target of close to 2%, she says. In addition, negative factors for the krone include low oil prices and risk aversion amid market uncertainty over the January 20 inauguration of Donald Trump as U.S. president, she says. EUR/NOK rises 0.2% to 11.7319. (renae.dyer@wsj.com)
Euro Could Fall to Parity Against Dollar as Soon as This Week
0834 GMT – The euro could fall towards parity against the dollar as early as this week if data support expectations for U.S. economic outperformance, Commerzbank’s Antje Praefcke says in a note. U.S. data in coming days could “confirm the market’s view that the U.S. economy remains resilient and the growth gap between the U.S. and other industrialized nations is widening further,” she says. The euro rises 0.3% to $1.0341, having reached a two-year low of $1.0227 on Thursday, according to FactSet. U.S. data this week include durable goods orders at 1500 GMT, the ISM services index and JOLTS job opening figures on Tuesday, ADP private payrolls on Wednesday and nonfarm payrolls on Friday. (renae.dyer@wsj.com)
Dollar Edges Lower on Caution Ahead of This Week’s U.S. Jobs Data
0804 GMT – The dollar falls slightly as traders exercise caution ahead of the key U.S. nonfarm payrolls report due Friday. The dollar has recently risen strongly in a short space of time so there is potential for a short-term pullback, “perhaps by virtue of some profit-taking” ahead of the jobs data, Pepperstone strategist Michael Brown says in a note. Brown says he’s “reluctant to read too much” into the dollar’s current retracement and remains positive on the currency’s medium-term prospects. The DXY dollar index falls 0.2% to 108.785. It reached a two-year high of 109.533 on Thursday before falling back below 109.000 Friday. (renae.dyer@wsj.com)
Courtesy/Source: The Wall Street General
