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Dollar Weakens as Labour Data Brings Interest Rate Expectations to the Surface

Miguel A. Rodriguez
Miguel A. Rodriguez
09 June 2023

As the June meeting of the Federal Reserve (Fed) approaches, economic data is in focus as it could sway the interest rate decision. Labour market data gave some relief to US stocks yesterday, while the Dollar weakened, and treasury yields went lower. 

Fresh labor market statistics yesterday helped to somewhat calm concerns about interest rate hikes, helping US equities recover some of their losses from the previous day.

The number of new unemployment claims last week exceeded expectations, coming in at 261,000 as opposed to the predicted 235,000, indicating that the tight labor market may be loosening up slightly.

Market interest rate movements, that are in line with predictions for the Fed's decision next week, continue to be closely watched by the market.

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The Fed constantly monitors labor market data, and recent data releases have been erratic and unclear, coming right before the central bank’s meeting next week to decide the next rate move.

In the futures market, it is still expected that the central bank will pause its interest rate hike and then return to a quarter of a percentage point increase in July, which would be highly unusual for the Fed.

This pause would give the Fed time to evaluate how effectively its past ten rate hikes have cooled the economy.

The following set of dot chart forecasts from Fed members, including their prognosis on economic output, inflation, and unemployment, are also anticipated at the time the Fed announces its decision. These forecasts will provide investors with important information.

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The Consumer Price Index, which is another important economic indicator, is expected to be released just one day before the Fed meeting. The Federal Open Market Committee (FOMC) members will base their decision on a number of important factors, including the inflation figures.

The currency market saw the greatest shift yesterday. The announcement of unemployment claims statistics caused treasury yields to decline, which in turn caused the dollar to decline.  

Due to the selling of US Dollars, the EUR/USD rose more than 70 pips and broke through the 1.0760 barrier level. 

DMO 09.06.2023 graph.png

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.