US dollar continued to decline against major currencies on Thursday. The euro is trying to regain the highest levels since yesterday, which represent the highest levels since the first of last September, as it exceeded the 1.08753 level at approximately 1:30 p.m. GMT on Thursday.
At the same time, the British pound was able to reduce its extended losses against the dollar since Tuesday afternoon by reaching the level of 1.24305 again. Against a basket of major currencies, the Dollar Index (DXY) fell by 0.16% to the level of 104.175, which is also slightly close to the lowest levels in two months.
The dollar’s declines today come with further weakness shown by the US labor market, with a larger-than-expected rise in weekly unemployment claims, which in turn, in addition to the noticeable decline in inflation last October, helped strengthen the markets’ hypothesis that the Fed has actually finished the cycle of hiking interest rates.
We witnessed about 231K of unemployment claims during the past week, which is higher than expectations of 221K. In addition, this number today represents the highest reading that we have not seen since mid-last August, in addition to the fact that today’s reading is higher than the average of the last four weeks at 220 thousand.
In addition to the negative labor market data, declining foreign trade figures for October also helped put pressure on the US dollar and bond yields today, both on the import and export side.
We witnessed a contraction in the Import Price Index by 0.8% last October, exceeding expectations for a contraction of 0.3%. Today’s reading also represents the fastest pace of contraction in import prices, which we have not seen since the revised reading last March.
Exporters were not better off, as the Export Price Index contracted at the highest rate since May of this year, by 1.1%, which was worse than expectations for a contraction of 0.5% and significantly lower than the previous reading, which witnessed a growth of 0.5% for the index.
A few minutes after the release of these numbers, we witnessed a higher-than-expected contraction in industrial production last October, by 0.6% compared to September of this year, and a contraction of 0.7% compared to October of last year. While the greatest pressure on industrial activity came from a sharp contraction of 10% in vehicle production due to recent labor strikes.
At the sector levels as a whole, the contraction of the consumer goods and utilities sectors contributed to putting the greatest pressure on industrial production during the past month.
In contrast, business owners appear to be more confident in the US economy, with the negative sentiment of manufacturer continuing to decline, as we witnessed through the November reading of the Philadelphia Fed Manufacturing Index. The index recorded a reading of -5.9 points, which was significantly lower than expectations and the previous reading of -9.
Also, in a positive sign about the health of the US economy, specifically the consumer sector, Walmart was able to outperform analysts’ expectations in its third-quarter earnings results, with more than $160 billion in revenues recorded during the period ending last September 30.
In light of these combined figures, it seems that the markets have become truly convinced of the end of the interest rate hike cycle, but this came according to the best scenarios, which is avoiding the US economy entering a recession and achieving a soft landing of inflation, despite the decline in the labor market and tight credit conditions.
Pressure also continues on the US dollar from the Eurozone economy, which continues to show more signs of recovery and the ability to return to growth again despite record high interest rates.
In addition to the previous series of positive data we witnessed this month from Eurozone, the President of the European Central Bank, Christine Lagarde, today spoke about the role of the labor market, which remains resilient in supporting the banking system and preventing the spread of non-performing loans, despite the pressure on consumers due to the high inflation. However, Lagarde said that higher interest rates could put more pressure on banks and their fixed income portfolios.