U.S. dollar drops weak private jobs data while euro gains

The dollar fell to a more than a one-week low after data showed a decrease in U.S. private sector employment in January. It resulted from an increase in COVID-19 infections.

However, the data is improbable to prevent the Fed from hiking interest rates at the March policy meeting. But the report eased expectations of a significant interest rate growth of half a percentage point.

In contrast, the euro gained a fourth consecutive day, coming off a 21-month low last week, as eurozone inflation grew to a new record high in January. That fueled bets the European Central Bank could increase interest rates sooner than anticipated.

With the euro as the most significant component, the dollar index fell 0.4% to 95.9261. It is on track for its most considerable weekly percentage loss since November 2020, at 1.4%.

On Wednesday, ADP reported that U.S. private payrolls fell by 301,000 jobs in January. Data for December appeared lower to show 777,000 jobs added instead of the initially reported 808,000. Economists polled by Reuters forecast an addition of 207,000 in private payrolls.

Overview of the current situation regarding the data and dollar

Chief market strategist at Cambridge Global Payments in Toronto, Karl Schamotta, discussed the current situation. He said that markets are well-prepared for an Omicron-driven drop in payrolls. Several Fed officials have signaled comfort with the underlying economy’s direction in recent days.

He added that the Fed would retain a hawkish bias until financial conditions tighten meaningfully. He also said that momentum should support the dollar. Karl noted that a peak is coming, but they are not quite there.

In late afternoon trading, U.S. rate futures priced in about 4.8 hikes this year, or 118.7 basis points of policy tightening. It appeared down from the five rate increases seen over the last two days. Futures also showed the possibility of a 50-basis-point hike in March has settled at 12.6%, from as high as 33% late last week.

Interested in Forex Trading? Read WiBestBroker’s comprehensive LimeFX Review.