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Wall Street Looks Past Dollar Dip Toward Fed’s Rate-Hike Finale

Published 06/01/2023, 17:20
Updated 06/01/2023, 17:20
© Reuters.

© Reuters.

(Bloomberg) -- Wall Street strategists are looking beyond a dip in the dollar after the latest US jobs report, focusing on odds the Federal Reserve will still need to tighten its monetary policy — albeit at a less-frantic pace.

The Bloomberg Dollar Spot Index weakened Friday after a mixed reading of US employment data, which revealed both a strong labor market and cooling wage gains in December. The greenback extended losses to 0.7% after a US services gauge unexpectedly shrank at the end of 2022.

Even so, the US currency is still on track for its first weekly gain in three. The Fed is now expected to raise rates to a peak of around 5% during this cycle, according to swaps traders, implying still some further room for increases.

Investors will now turn their attention to next week’s inflation print and a string of speaking engagements from Fed officials — including Chairman Jerome Powell — for clues on the path of monetary policy. 

Here’s what strategists on Wall Street are saying: 

Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole (OTC:CRARY) CIB

  • “The mix is still positive enough for the Fed to keep hiking rates.”
  • “As such, I would think that any downward correction in the USD could be a shallow one, with investors using USD dips to position ahead of Powell and CPI next week.”

Marc Chandler, chief market strategist at Bannockburn Global

  • Money managers had built up bullish positions on the greenback ahead of the report with “stretched” short-term indicators that showed the currency was overbought.
  • “The economy is growing too fast, and the labor market is too strong to allow inflation to fall back toward target in the kind of time frame the Fed want to avoid it being embedded into consumer and business expectations.”

Alejandro Cuadrado, head of global FX strategy at BBVA (BME:BBVA)

  • “More important now is the secondary inflation read rather than the gradual employment deceleration.”
  • “The dollar has been strong in this first week of the year. The read softens it a bit but no bigger reasons for massive trend changes.”

©2023 Bloomberg L.P.

 

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