- US Dollar retreats after reaching its highest level after labor and inflation data.
- US citizens filing new applications for unemployment insurance last week arrived below expectations.
- The headline PPI for October came in at 2.4%, higher than expected.
The US Dollar Index (DXY), a measure of the value of the USD against a basket of six currencies, softened after hitting a fresh year-to-date high near 107.00. The Greenback has been on a rise in recent days, but profit-taking and disappointing US economic data have led to a slight retracement. The headline Producer Price Index (PPI) for October came in at 2.4% YoY, above expectations of 2.3%, and the PPI excluding Food and Energy rose to 3.1% YoY, also arriving above forecasts.
Additionally, US citizens filing new applications for unemployment insurance was reported at 217K for the week ending November 9, which came in below expectations of 223K. .
Daily digest market movers: US Dollar eases after hitting new annual high due to profit-taking and economic data
- Initial Jobless Claims in the US increased to 217K in the week ending November 9, below estimates of 223K and the prior week’s 221K.
- The seasonally-adjusted insured unemployment rate remained at 1.2%, while the four-week moving average decreased to 221K.
- Headline PPI in the US rose 2.4% YoY in October, exceeding estimates and marking a significant increase from September’s 1.9% revised gain.
- Excluding Food and Energy, PPI increased by 3.1% YoY, higher than expectations and the previous reading of 2.9%.
- On a monthly basis, headline PPI and core PPI both rose by 0.2% and 0.3%, respectively, meeting expectations but higher than the previous rate.
DXY technical outlook: Index shows bullish momentum, but overbought indicators warrant caution
The technical analysis of the DXY Index indicates a surge in momentum, driven by strong gains in the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD). However, as these indicators approach overbought territory, the DXY may enter a period of consolidation.
The recent surge and subsequent retreat in the DXY suggests that buyers may be taking profits after a strong rally. This could indicate a potential reversal or consolidation in the short term. The 107.00 level has acted as a strong resistance, and its failure to break through on a sustained basis could add weight to the notion of a pullback.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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