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US Dollar Strengthens While Markets Wait for Employment Data

Miguel A. Rodriguez
Miguel A. Rodriguez
05 December 2023

The stock market felt downward pressure from American bond yields yesterday while the US Dollar strengthened. Markets are now waiting to see the outcome of US employment data as it could sway the Federal Reserve’s (Fed) future rate decisions. 

Powell’s Comments Reinforced Notion that Rates Have Peaked

The stock market started the week with losses. Both stocks and bonds fell in a sign that investors' aggressive expectations of Fed rate cuts may have gone too far.

Jerome Powell's remarks on Friday reinforced the view that rates had peaked. The Fed’s chief said the risks of the US central bank slowing the economy more than necessary have become "more balanced". This is with respect to not raising interest rates enough to control inflation.

Markets are Eager to See US Employment Data this Week

Key economic data on employment will be closely watched in the coming days for clues about the Fed's next steps. These figures could confirm the notion that interest rates could be cut next year and provide the stock markets and treasury bonds with more of a boost.

Rising US Bond Yields Put Downward Pressure on Stocks

Technically “overbought” conditions and largely long positioning have left markets in a more fragile state after impressive rallies in both stocks and Treasuries last month.

American bond yields rose around 10 bps yesterday and put downward pressure on stock markets. The Nasdaq index, the most sensitive to interest rates, lost more than 1% in the session.

The US Dollar Climbed on the Rise of Market Interest Rates

 The US Dollar strengthened on the rise in market interest rates with the EUR/USD pair falling almost 100 pips on the day.

Oil Lost More Than 1% on Disappointing OPEC+ Meeting

In the commodities market, oil started the day with losses of more than 1%. This came after the OPEC+ meeting disappointed the market with a decision on voluntary and poorly defined production cuts.

However, the uncertainty around growing geopolitical tensions after the war between Israel and Hamas started up again, could support the price of oil.  There was an attack on a US warship and commercial vessels in the Red Sea on Sunday. Yemen's Houthi group claimed responsibility for drone and missile attacks on two Israeli ships in the area.

The developments risk inflaming fears that the war between Israel and Hamas could escalate into a broader conflict, potentially affecting crude supplies in the oil-rich region.

crude oil futures graph 5 december 2023.png

Crude Oil daily chart, December 5, 2023. Source: CAPEX.com WebTrader.  

Key Takeaways

  • Comments by Fed Chief Jerome Powell reinforce the notion that rate hikes have reached their peak.
  • Markets eagerly await US employment data to get more clues about the future of interest rates.
  • American bond yields rose around 10 bps yesterday.
  • The stock market felt pressure and the Nasdaq index lost more than 1%.
  • The US Dollar strengthened on the rise in market interest rates.
  • The EUR/USD pair fell almost 100 pips.
  • Oil lost more than 1%.

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Sources: Bloomberg, Reuters

 

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Miguel A. Rodriguez
Miguel A. Rodriguez
financial_writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.