The US dollar is consolidating this week’s losses and trading near its lowest levels during the week. Global equity markets continue to rise while long-term sovereign bond yields remain under modest upward pressure. US 10-year Treasury yields rose about 10 basis points this month to 4.11%, mostly reflecting stronger inflation expectations. BBH FX analysts report that 10-year Treasury yields have ranged between 3.95% – 4.20% over the past three months.
Fed rate cut bets are gaining strength as job growth slows
“Weekly US unemployment claims confirm there is no downward spiral in layoffs. Initial claims for the week ending November 29 fell to 191K (consensus: 220K) versus 218K the previous week, just below the September 2022 record low of 189K.”
“However, labor demand in the US is weak. Non-farm employment (private and public) at Revelio Laboratories fell by -9K in November versus -15.4K in October. This data comes on the heels of a weak ADP report, which showed that private sector employers lost -32K jobs in November. We see a growing risk of the Fed cutting initial interest rates towards neutral levels (near 3%) to prevent the employment decline from turning into widespread layoffs. This will have a greater impact on the US dollar.”
“September personal consumption expenditures (PCE) report is due today (3:00 PM in London, 10:00 AM in New York). Core and core PCE contraction is expected at 2.8% y/y versus 2.7% and 2.9% in August, respectively. While progress toward the Fed’s 2% inflation target is stalling, upside risks to prices are not crystallizing, leaving room for the Fed to ease policy. ISM prices pushed “Indicators point to moderation in inflationary pressures.”
