The US dollar experienced a decline against a basket of currencies as concerns grew over the possibility that US interest rates have peaked. This drop was fueled by news of steady US business activity in November, coupled with a decline in private sector employment, aligning with expectations of a fourth-quarter economic slowdown.
Currency markets traded within a narrow range, especially with US markets closing early after the Thanksgiving holiday. Market analyst Michael Brown from Trader X in London noted the quietness in the market, attributing it to thin liquidity and light volumes, suggesting a trend of the market taking the ‘path of least resistance.’
S&P Global reported that its flash US Composite PMI Output Index remained unchanged at 50.7 in November, indicating a balance between a modest rise in services sector activity and a contraction in manufacturing. The lack of significant order growth led to a decrease in employment, with the survey’s employment index dropping to 49.7, marking the first contraction since June 2020.
This easing labor market is seen as supportive of the Federal Reserve’s efforts to combat inflation. Analyst Jane Foley from Rabobank noted that economic data indicates a cyclical downturn in the US.
The dollar index, measuring the US currency against six peers, decreased by 0.4% to 103.35, remaining close to the 2.5-month low of 103.17 earlier in the week. For the week, the index was down by 0.5%, following a 1.9% slip the previous week. Growing expectations that the Federal Reserve has concluded its interest rate hikes, with the possibility of rate cuts next year, are contributing to the index’s weakest monthly performance in a year.
In other markets, the Japanese yen held steady against the dollar at 149.45, with news of Japan’s core consumer price growth slightly picking up in October reinforcing investor views that inflation might prompt the Bank of Japan (BOJ) to roll back monetary stimulus.
ING economists anticipate the BOJ to move away from its super-accommodative stance in the first quarter of the next year, scrapping the yield curve program and potentially initiating its first rate hike in Q2 2024 if wage growth accelerates.
The euro rose by 0.39% to $1.0946 after data confirmed Germany’s slight economic contraction in the third quarter. German business morale showed improvement for the third consecutive month in November.
Sterling experienced a 0.57% increase, reaching its highest point since early September, following data indicating that British companies returned to growth in November, raising hopes of avoiding a recession.
In the cryptocurrency market, Bitcoin rose by 1.14% to $37,728, reaching its highest level since May 2022. The influx of spot Bitcoin and Ether exchange-traded fund (ETF) filings, including from traditional finance giants, has revitalized the crypto market, which faced significant challenges last year.
