On Tuesday, data showed that U.S. job openings in February had dropped to their lowest level in almost two years, indicating that higher rates were starting to impact the labor market. This led the dollar to its two-month low as the Federal Reserve may not need to raise interest rates by a large amount.
The monthly Job Openings and Labor Turnover Survey (JOLTS) report revealed that job openings, a measure of labor demand, fell to 9.9 million on the last day of February, which was below the expected 10.4 million.
- According to OANDA strategist Craig Erlam, "The JOLTS data yesterday could be the first signs of weakness in the US labour market and that is huge"
- He added that without it, the Federal Reserve would find it challenging to argue for pausing the tightening cycle
The dollar has been steadily declining since September, and in the last week, the pace has accelerated. The U.S. currency has fallen in 16 of the last 25 trading sessions, and Refinitiv data shows that up days have not consistently outnumbered down days in a five-week period since around July 2020.
U.S. Dollar Could Drop 15% Over Next 18 Months
According to a research note by Stephen Jen at Eurizon SLJ Capital, the U.S. dollar may weaken by up to 15% in the next 4 to 6 quarters as inflation continues to decrease and the Federal Reserve eases monetary policy.
- Inflation, as measured by the consumer price index, increased by 6.0% year-over-year in February, but Jen predicts that it will drop to below 4% by the fourth quarter of this year
- Jen believes that the Fed and the European Central Bank are likely close to or already beyond their peak hawkishness and that rate cuts are on the horizon
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