Dollar Steady as Traders Weigh Labour Data, Rate Outlook

CURRENCY - SINGAPORE. The dollar was near a two-week high against a basket of currencies on Wednesday as investors assessed U.S. economic data that showed a cooling labour market, while wagering the Federal Reserve will cut rates next year.

The dollar index, which measures the U.S. currency against six rivals, was 0.019% higher at 103.99, having climbed 0.3% overnight. The index is up 0.5% this month, after sliding 3% in November, its steepest monthly decline in a year.

Data on Tuesday showed U.S. job openings fell to more than a 2-1/2-year low in October, the strongest sign yet that higher interest rates were dampening demand for workers. Data also showed there were 1.34 vacancies for every unemployed person in October, the lowest since August 2021.

The focus will now shift to the Friday release of the November jobs report to provide clues on the strength of the economy ahead of the Fed's policy meeting next week.

"This week the highlight is payrolls (report)," OCBC currency strategist Christopher Wong said, adding that a downside surprise could see dollar rebound stall.

Fed officials are now in a blackout period ahead of the U.S. central bank’s Dec. 12-13 meeting, where a key focus will be the updated projections of where they see rates at in 2024.

Traders have priced in 99.7% chance of the Fed standing pat next week but a 56% chance of the central bank cutting rates in March, according to CME's FedWatch tool.

Read Also: Moody's Puts China on Downgrade Warning as Growth, Property Pressures Mount

ANZ analysts forecast conditions for the Fed to start cutting interest rates will emerge around the middle of 2024 but cautioned Chair Jerome Powell will need to maintain hawkish guidance during the transition to lower growth and inflation.

The widely expected rate cuts in 2024 will result in the dollar loosening its grip on other G10 currencies next year, dimming the outlook for the greenback, according to Reuters poll of foreign exchange strategists.

Meanwhile, the euro was at $1.0795, having dropped to three-week low of $1.07785 on Tuesday.

Investors believe the European Central Bank could deliver its first rate cut by March. Inflation across the euro zone has fallen more quickly than most anticipated, as evidenced by last Thursday's consumer price data.

Sterling was last at $1.2601, up 0.06% on the day. The Japanese yen strengthened 0.03% to 147.12 per dollar.

The offshore Chinese yuan eased 0.09% versus the greenback to $7.1657 per dollar. Ratings agency Moody's on Tuesday cut China's credit outlook to "negative" on Tuesday.

In cryptocurrencies, bitcoin surged above $44,000 - its highest since April 2022 - and was last at 43,995.

The world's largest cryptocurrency has gained 150% this year, fuelled in part by optimism that a U.S. regulator will soon approve exchange-traded spot bitcoin funds (ETFs).