US dollar shows signs of strength as US releases robust jobs report
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The US dollar showed stability on Monday after a solid US jobs report. The report raised speculations that the Federal Reserve will remain hawkish, which will prop up the dollar. Last week, the Fed raised interest rates by 25 basis points amid speculations of the hikes slowing down before a pause.
US dollar shows signs of strength
Last week, the US Labor Department released an employment report showing that nonfarm payrolls had increased by 517,000 jobs compared to the previous month. The dollar reported solid gains compared to other currencies reaching a nearly four-week high. The US dollar index also increased by 1.1% on Friday.
Last week, the Fed hiked rates by 25 basis points, saying it had reached a pivot point in the battle against inflation. The speech given by the Fed Chair raised investor hopes that the markets could be headed for a recovery. However, the employment data has led investors to wonder whether the Fed will soon pivot from its hawkish stance.
A report by Reuters noted that analysts are questioning the Fed’s decision in the future. According to the head of market economics at the National Australia Bank, Tapas Strickland, the concern was that the recovering data would trigger the Fed into hiking interest rates further and maintain a hawkish stance for longer.
On the other hand, strategists at Citi have earlier opined that the Fed Chair and the Federal Open Market Committee (FOMC) are looking forward to a “soft-landing” when the inflation levels drop to the target despite the strong labor market. However, after the employment data was released, Citi said that the Fed would be concerned about the labor markets being too tight to match the target inflation.
Analysts expect that the interest rates will peak at 5.05% in June before the central bank slashes rates during the second half of 2023. The speculation of prolonged hikes has helped strengthen the US dollar.
The dollar is also gaining after the US military shot down a suspected Chinese spy balloon amid escalating tensions between the two countries. The other global currencies slightly gained during the day include the euro, sterling, and the Australian dollar.
Japanese yen plunges
On the other hand, the Japanese yen has been crumbling. An earlier report had said that the Japanese government was looking to replace the governor of the Bank of Japan, Haruhiko Kuroda, and his two deputy governors.
Deputy Chief Cabinet Secretary Yoshihiko Isozaki denied these claims. However, the yen has weakened and recently plunged to a three-week low. The Nikkei report said that the BoJ deputy governor, Masayoshi Amamiya, was being proposed as the next governor.
In 2013, Amamiya played an instrumental role in Kuroda’s asset-buying program. He has also advocated for interest rates to remain low. However, in July, he said that the BoJ must devise ways of abandoning the loose monetary policy.
