Dollar Losses Bolstered By Falling Unemployment Rate

The dollar index (DXY) extended lower below its 96.00 levels, plunging more than 0.50% to end the market at 95.67 amid a weaker than expected Non-farm Payrolls (NFP) report.    

According to the Bureau of Labor Statistics, the US NFP reported 199K number of jobs created in December, missing economists’ expectations of 400K by a long shot. However, the US unemployment rate continued to fall by 0.3% to 3.9%, closing in to its pre-pandemic levels around 3.5%.

Investors are currently assessing the mixed jobs report, while waiting for further confirmation from upcoming Fed’s testimony led by Chairman Jerome Powell. Optimism surrounding a rate hike earlier by the Fed had kept dollar supported at its higher levels, after the Fed addressed its concerns towards surging inflationary pressure in the nation.

The Fed signaled a potential rate hike as early as March this year, placing them ahead of other major central banks such as the European Central Bank (ECB) and the Reserve Bank of Australia (RBA), where both banks are reluctant to raise their rates before 2024. Difference in the pace of policy tightening had drawn attention away from the euro (EUR) and the Aussie (AUD), with the euro trading at one-year low against the dollar.  

The Fed’s testimony will cover on the nation’s economic progress, while explaining the necessary tools required to ensure continuous support towards its economy. Investors will also shift their focus over to this week’s US inflation data, where further increase in goods price could forced the Fed to raise its rates sooner to prevent inflation from overheating.   

——————————————————————————————————————-

From the technical front, dollar index in its H4 timeframe continues to consolidate within a side-way channel between the 96.80 resistance and 95.80 support level. Last Friday’s jobs report led the dollar back towards the bottom-level of its channel, however, failing to provide further bearish confirmation until a breakout below the support level happens. In the long-term, the dollar continues to be traded within an uptrend, suggesting the dollar to rebound higher.