Forex

US Dollar Struggles as Unemployment Claims Surge; Market Anticipates Fed's Next Move

US dollar weakens as jobless claims rise; market awaits inflation data and Fed decision. Euro strengthens, Canadian dollar and Australian dollar gain momentum.

iShook Opinion

Jun 8, 2023 - 10:40

Jun 8, 2023 - 10:41

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US Dollar Struggles as Unemployment Claims Surge

The U.S. dollar faced a setback as jobless claims rose unexpectedly, signaling potential difficulties in the labor market. Investors, however, remained focused on forthcoming inflation data and eagerly awaited the Federal Reserve's decision on interest rates scheduled for the following week. According to the Labor Department, initial claims for state unemployment benefits jumped by 28,000 to a seasonally adjusted 261,000 for the week ending June 3, surpassing economists' earlier forecast of 235,000 claims.

Marc Chandler, the chief market strategist at Bannockburn Global Forex in New York, expressed his thoughts on the unexpected rise in jobless claims, stating, "While the claims were slightly higher than expected, we are currently in a phase of consolidation. It feels like we are trapped for now." Despite this setback, the dollar had been bolstered by expectations of a rate hike by the Federal Reserve in July. However, market sentiment has shifted, with growing belief that the central bank may pause rate hikes after its upcoming June 13-14 meeting. Concerns over worsening economic data may limit the Federal Reserve's ability to implement further rate increases, despite persistent inflation pressures.

Chandler further explained, "There is a limited window of opportunity for the Fed to raise rates again, whether in June or July. Presently, the market favors July as it perceives little room for further action due to the anticipated weakening of the economy."

Surprisingly, despite the euro zone economy technically being in a recession during the first quarter of 2023, the euro managed to strengthen against the dollar, showing a 0.57% increase with an exchange rate of $1.0759. Conversely, the dollar weakened by 0.70% against the yen, reaching 139.15 yen. The dollar index, which measures the dollar against six major currencies, declined by 0.48% to 103.53, retracing from its peak of 104.7 reached last week, the highest level since March 15.

Turning attention to other currencies, the Canadian dollar demonstrated strength following the unexpected decision by the Bank of Canada to raise interest rates to 4.75%, marking a 22-year high. Consequently, the greenback experienced a slight decline of 0.10%, with an exchange rate of C$1.3355. Additionally, the Australian dollar gained momentum after the Reserve Bank of Australia raised the cash rate to an 11-year high of 4.1%, resulting in a 0.75% increase to $0.6703.

Looking ahead, market participants are eagerly anticipating the European Central Bank's decision on interest rates during its upcoming meeting the following Thursday. The market expects a 25 basis point increase, followed by another 25 basis point increase in July, bringing rates to 3.75%.

As investors navigate uncertain economic conditions and await key monetary policy decisions, the outcome of the Federal Reserve's interest rate decision and the upcoming inflation data will undoubtedly shape the trajectory of the U.S. dollar and broader financial markets in the weeks to come.

Currency bid prices at 9:40 AM (1340 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session

Dollar index 103.5300 104.0400 -0.48% 0.039% +104.0700 +103.5100

Euro/Dollar $1.0759 $1.0699 +0.57% +0.42% +$1.0763 +$1.0698

Dollar/Yen 139.1500 140.1600 -0.70% +6.16% +140.2250 +139.1300

Euro/Yen 149.70 149.93 -0.15% +6.70% +150.0400 +149.6000

Dollar/Swiss 0.9016 0.9102 -0.93% -2.48% +0.9107 +0.9014

Sterling/Dollar $1.2513 $1.2439 +0.59% +3.46% +$1.2516 +$1.2438

Dollar/Canadian 1.3355 1.3371 -0.10% -1.42% +1.3375 +1.3334

Aussie/Dollar $0.6703 $0.6653 +0.75% -1.67% +$0.6707 +$0.6652

Euro/Swiss 0.9702 0.9736 -0.35% -1.95% +0.9761 +0.9696

Euro/Sterling 0.8598 0.8599 -0.01% -2.78% +0.8613 +0.8594