The US Dollar steadied on Friday morning in Europe after falling against major currencies on Thursday. Attention now turns to labor market data from Canada and the University of Michigan’s US Consumer Sentiment Index for November. On Thursday, Challenger, Gray & Christmas reported that US employers cut over 150,000 jobs in October. This is the largest drop for that month in over twenty years. As a result, Wall Street indexes fell significantly, and the USD Index dropped by 0.5%, settling around 99.80 on Friday.

Bank Of England Keeps Policy Rate

The Bank of England maintained its policy rate at 4% in November, as expected. Four committee members supported a 25-basis-point rate cut. Initially, this news negatively impacted the Pound Sterling, but Governor Andrew Bailey’s cautious remarks helped it recover. Currently, GBP/USD is trading above 1.3100 after a strong gain on Thursday. Meanwhile, EUR/USD rose by about 0.5% on Thursday and remains steady below 1.1550. Data from China showed weaker-than-expected export and import growth, pushing AUD/USD closer to 0.6500. Gold is steady above $4,000, and USD/JPY is performing well near 153.50. The recent large job cuts, the biggest for an October in over twenty years, are a serious warning for the US economy. Weakness in the labor market—especially in tech and retail—poses a challenge to the Federal Reserve’s strict policy. We may need to consider the possibility of a policy shift sooner than expected. This worry is intensified by last week’s official jobs report, which revealed only 85,000 jobs were added in October, significantly below expectations. With CPI inflation still hovering around 3.5%, the Fed finds itself in a tough spot. This situation brings back memories of stagflation fears from 2022 but now comes with actual job losses.

Market Volatility And The Fed’s Dilemma

Given this uncertainty, we should expect increased volatility in interest rate and currency markets in the coming weeks. Traders might consider buying put options on the US Dollar Index as a direct bet on a Fed policy shift. The upcoming University of Michigan Consumer Sentiment Index will be a crucial indicator; a disappointing result would strengthen the bearish outlook for the dollar. Gold’s strength, staying above $4,000 an ounce, reflects these concerns. This pricing indicates that investors are seeking safety from ongoing inflation and a possible economic downturn. A less aggressive Fed historically boosts gold prices since it lowers the opportunity cost of holding this non-yielding asset. In this context, the recent strength of the British Pound appears delicate. Four BoE members have already voted for a rate cut. While Governor Bailey’s comments provided temporary support, the UK economy is likely to feel the impact of a US slowdown. The rise in EUR/USD seems more tied to general dollar weakness than any notable strength of the Euro at this time. Create your live VT Markets account and start trading now.

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