The U.S. dollar was steady on Monday as investors digested a clutch of economic data released last week that stoked hopes of the Federal Reserve slowing the pace of its interest rate hikes.
Data on Friday showed U.S. nonfarm payrolls rose by 223,000 jobs in December, while a 0.3 per cent rise in average earnings was smaller than expected and less than the previous month’s 0.4 per cent, according to Reuters.
There were further signs of an economy slowing down, with the U.S. services industry activity contracting for the first time in more than 2-1/2 years in December amid weakening demand.
That led the dollar index, which measures the U.S. dollar against six major currencies, 1.15 per cent lower on Friday. On Monday, the index, which gained 8 per cent in 2022, was 0.01 per cent higher at 103.720.
Investors have pinned their hopes on the U.S. central bank toning down its aggressive monetary tightening policy. Fed fund futures now imply around a 25 per cent chance of a half-point hike in February, down from around 50 per cent a month ago.
Analysts, however, point to the still tight labour market that is likely to concern Fed officials.
“December’s payrolls report shows the U.S. jobs market remains too tight to allow the Fed to step down to a 25 bps rate hike next month,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore.
“We expect the Fed will stay more hawkish than the market anticipates, keeping us cautious on the near-term outlook for risk assets.”
With the next Fed meeting scheduled at the start of next month, investors will focus on the consumer price index data due on Thursday.
Citi said it expects another “softer” core CPI print with some upside risk but said core inflation could pick up again in early 2023.
“We continue to expect the Fed to hike by 50 basis points in February as there are still strong underlying inflationary pressures and further loosening in financial conditions would likely not be a desirable outcome.”
Elsewhere, the Brazilian real had yet to trade after supporters of far-right former President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and Supreme Court.
The Japanese yen strengthened 0.12 per cent versus the U.S. currency to 131.94 per dollar, while sterling was last trading at $1.2099, up 0.06 per cent on the day, having gained 1.5 per cent on Friday.
The euro was up 0.11 per cent at $1.0656, after closing 1.17 per cent higher on Friday.
The Australian dollar rose 0.17 per cent versus the U.S. currency to $0.689, while the kiwi gained 0.02 per cent to $0.635.
