Dollar gains vs most currencies as US nonfarm payrolls loom

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) -The dollar rose against most currencies on Thursday in choppy trading, bolstered by better-than-expected U.S. labor market data that dampened expectations of multiple interest rate cuts by the Federal Reserve this year.

A crucial nonfarm payrolls report due on Friday could guide the outlook on Fed policy easing. Economists polled by Reuters forecast that 170,000 jobs were created in December, fewer than the 199,000 the month before.

The U.S. currency gained on news that U.S. private employers hired more workers than expected in December. Private payrolls increased by 164,000 jobs last month, the ADP National Employment Report showed, the largest monthly increase since August. Economists polled by Reuters had forecast private payrolls rising by 115,000.

Initial claims for state unemployment benefits dropped by 18,000 to a seasonally adjusted 202,000 for the week ended Dec. 30, also bolstering the dollar. Economists polled by Reuters had forecast 216,000 claims for the latest week.

The data “showed that the U.S. economy is in a healthy position,” said Amo Sahota, director at FX consulting firm Klarity FX in San Francisco. “That’s where everything leads down this road of resetting market expectations early this year on what the Fed’s action is going to be.”

Following Thursday’s economic reports, U.S. interest rate futures reduced expectations on the number of rate cuts for 2024 to four decreases of 25 basis points each, from about six late on Wednesday, according to LSEG’s interest rate probability app.

Wednesday’s release of the minutes of the Federal Reserve’s Dec. 12-13 policy meeting was viewed as modestly hawkish by market participants. Fed officials “stressed … that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the (Federal Open Market) Committee’s objective.”

“If there was going to be a hard landing in the economy, then sure, let’s ramp up expectations for a quick interest rate cut early this year,” Sahota said. “But that is not what the Fed is thinking and (based on the data), we’re not headed for a hard landing and the economy looks pretty good.”

In cryptocurrencies, bitcoin gained 3%, at $44,157. Investors are anticipating U.S. Securities and Exchange Commission approval of the first spot bitcoin exchange traded fund over the next week or so.

In afternoon trading, the dollar index rose slightly to 102.44, after hitting two-week peaks on Wednesday.

Against the yen, the greenback rose to two-week peaks, climbing for three straight days. The dollar was last up 0.9% at 144.52 yen.

That said, Thierry Albert Wizman, global FX and rates strategist at Macquarie in New York, does not believe dollar gains since the beginning of the year could be sustained despite a pushback in rate cut expectations.

“I do think the U.S. economy will slow, and it’s going to be a consumer-led slowdown and we’re going to see convergence between growth rates in the U.S. and the rest of the world this year,” Wizman said.

“Over the course of the first six months of the year, we can see some dollar weakness relative to the euro, sterling, and the yen.”

Among other currencies, the euro rose 0.2% against the dollar to $1.0948, on data showing higher inflation in Europe.

French consumer prices rose in December, in line with expectations, preliminary data from the national statistics body showed on Thursday, as energy and services prices rose over the year. In Germany, CPI inflation rose to 3.7% in December, as expected, from 3.2% a month earlier.

Sterling also climbed against the dollar following data showing British borrowers increased demand for loans and business service were more resilient than feared in Britain. UK net borrowing in November was the highest in nearly seven years.

A separate business survey, the UK Services Purchasing Managers’ Index (PM), showed Britain’s services firms grew more strongly in December than initially thought and optimism hit a seven-month high.

Sterling was last up 0.2% at $1.2680. It rose as much as 0.5% to $1.2728 after the data release.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Joice Alves in London and Rae Wee in Singapore; Editing by Mark Potter, Angus MacSwan, Jonathan Oatis and Richard Chang)