Key Points:
The US dollar has experienced a tumultuous ride in 2023, fluctuating on hopes of a Federal Reserve (Fed) pivot amid strong economic data and a robust labor market performance.
Despite a summer and autumn rebound, the greenback is poised to conclude the year with nearly a 3% loss against a basket of currencies, driven by heightened expectations of aggressive rate cuts in the coming year.
Federal Reserve Chief Powell’s subtle hints about an imminent pivot have fueled market expectations, with cumulative rate cut odds for 2024 approaching 160 basis points, despite the absence of a recession in the US economy.
The upcoming release of the December meeting minutes is anticipated to shed light on policymakers’ outlook and their intention to reinforce the view of only modest policy easing over the next couple of years.
Focus on the labor market remains crucial for the Fed, with indications that as inflation subsides, attention will shift to employment. Powell’s cautious approach reflects concerns about holding rates at restrictive levels potentially impacting the unemployment rate.
The December jobs report is expected to show a not-too-cold, not-too-hot scenario, with analysts projecting nonfarm payrolls to rise by 158k, a slight decrease from November’s 199k. The jobless rate is forecasted to tick up slightly to 3.8%, while average earnings are expected to show moderate increases.
