The dollar rose for a fifth session on strong labor data

The dollar index extended gains for a fifth consecutive session on Thursday following labor market data indicating job growth, thereby maintaining expectations for an interest rate cut from the Federal Reserve in check.

The Labor Department reported on Thursday that initial claims for state unemployment benefits fell by 16,000 to a seasonally adjusted 187,000 for the week ended Jan. 13. This marks the lowest level since September 2022, though it fell short of the 207,000 expectation of economists polled by Reuters.

Positive labor market data and stronger-than-expected retail sales suggest a favorable trend in the U.S. economy.

“The market’s doing what it loves to do and squeeze people out of crowded positioning. Ever since the start of the year, everything sort of flipped,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull in Toronto.

“You’ve had central bankers now push back on 2024 rate cut pricing, and I’d say on balance, economic data has been better than expected.”

The U.S. dollar index, tracking the currency against six peers, rose 0.14% to 103.47, hitting its highest level since December 13 and marking its fifth consecutive session of gains.

Expectations for a 25-basis-point cut from the Fed in March stand at 57.1%, per CME’s FedWatch Tool, down from 73.2% a week ago and a slight increase from 55.5% in the previous session.

New construction remains supported by a shortage of previously owned houses for sale, although a report from the U.S. Commerce Department indicated that single-family homebuilding paused in December after a recent period of gains.

Fed officials, including Governor Christopher Waller, have pushed back against expectations of an aggressive round of rate cuts, indicating that the speed and timing will be slower than initially priced in by market participants.

Atlanta Federal Reserve President Raphael Bostic stated on Thursday that he is open to reducing U.S. interest rates sooner than the third quarter if there is convincing evidence in the coming months that inflation is falling faster than he expected.

The dollar remained steady against the yen at 148.14 on Wednesday after reaching 148.52, its highest level since Nov. 28.

The Bank of Japan (BOJ) is expected to keep its ultra-loose monetary settings as it holds a policy meeting next Monday and Tuesday.

The euro dipped 0.14% to $1.0866 after the European Central Bank’s December meeting accounts revealed policymakers‘ confidence in inflation returning to target but acknowledged risks warranting steady policy and high borrowing costs.

Sterling rose 0.17% to $1.269, supported by unexpected inflation acceleration in December, reinforcing expectations that the Bank of England will be more measured in cutting rates compared to its counterparts.

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