Dollar Rises on Solid US Economic News

Economic Indicators - The dollar index (DXY) reached a 4-week high, increasing by +0.24% due to positive US economic news [1] - US job cuts in December fell by -8.3% year-over-year to 35,553, marking a 17-month low, indicating a stronger labor market [2] - Weekly initial unemployment claims rose by +8,000 to 208,000, which was better than the expected 212,000, suggesting a robust labor market [3] - Q3 non-farm productivity increased by +4.9%, close to the expected +5.0%, representing the largest rise in 2 years [3] - Q3 unit labor costs decreased by -1.9%, a more significant decline than the anticipated -0.1% [3] - The US trade deficit unexpectedly shrank to -$29.4 billion in October, better than the expected widening to -$58.7 billion, marking the smallest deficit in 16 years [3] Market Expectations - Markets are pricing in a 12% chance of a -25 basis point rate cut at the upcoming FOMC meeting on January 27-28 [4] - The Federal Reserve is expected to cut interest rates by approximately -50 basis points in 2026, while the Bank of Japan is anticipated to raise rates by +25 basis points in the same year [4] Dollar Pressure Factors - The dollar is under pressure as the Fed increases liquidity by purchasing $40 billion a month in T-bills since mid-December [5] - Concerns regarding President Trump's potential appointment of a dovish Fed Chair are contributing to bearish sentiment for the dollar, with Kevin Hassett being viewed as the most dovish candidate [5] Eurozone Impact - The EUR/USD pair fell to a 4-week low, decreasing by -0.21% due to the strength of the dollar [6] - An unexpected decline in Eurozone economic confidence and easing producer price pressures are seen as dovish for ECB policy, negatively impacting the euro [6]