US Dollar May Turn Defensive Anew on Cautious Fed Comments


The US Dollar spent most of last week on the defensive as financial markets returning from the winter holidays went about retracing from “Trump trade” extremes. The currency shrugged off supportive manufacturing- and service-sector ISM surveys but paid keen attention to minutes from December’s FOMC meeting. These showed that Fed officials were far less convinced of the need for a drastic hawkish policy pivot than the markets seemed to be.

December’s official US labor-market statistics lifted the greenback’s spirits. While the monthly payrolls gain fell short of analysts’ forecasts, wage inflation unexpectedly soared to a cyclical high of 2.9 percent. This hinted that the economy is running hotter than has been accounted for even before any expansionary fiscal policy championed by President-elect Trump compounds upward price pressure. This sent the US unit higher alongside bond yields and year-end Fed Funds rate projections implied by futures markets.

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