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13/01/2025 - 08:49 UTCThe U.S. dollar gained against most major currencies last week, with the dollar index up by 0.65% of its value, closing a sixth consecutive week higher. The recent release of a robust US jobs report has fueled concerns that the Federal Reserve may be hesitant to aggressively ease monetary policy. This apprehension has persisted into the new week, with investors now grappling with the possibility of the Fed actually increasing interest rates. This shift in sentiment is largely attributed to concerns that President-elect's proposed policies, including significant tariffs and tax cuts, could necessitate a tightening of monetary policy.
Following Friday's unexpectedly strong jobs report, Wall Street sentiment remains largely negative. The report revealed a substantial increase of 256,000 payrolls last month, significantly exceeding forecasts of 160,000. The unemployment rate also fell to 4.1%. This robust data has led market participants to push back expectations for the next Federal Reserve interest rate cut to June.
On the earnings front major banks begin reporting fourth-quarter data this week. JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs are scheduled to release their results on Wednesday, followed by Bank of America and Morgan Stanley on Thursday.
Oil prices rose sharply in the past week with the two main benchmarks WTI and Brent up by 3.52% and 4.12% respectively as wider U.S. sanctions are expected to affect Russian crude exports to top buyers China and India. The impact of these sanctions is expected to be severe. With Russian oil exports constrained, major oil importers like China and India will likely increase their reliance on crude oil from the Middle East, Africa, and the Americas.
For the week ahead markets will most likely be focusing on U.S. consumer prices, U.S. retail sales, the Empire State Manufacturing index, the Philly Fed manufacturing index, U.S. building permits and U.K. growth data. Much of the focus will be on Wednesday’s US CPI data after minutes from the Fed's December meeting, released last week, showed policy makers remain concerned over inflationary pressures.
The EUR/USD pair posted losses for a fourth consecutive session on Friday ending the day 0.51% lower. The pair faces pressure from a stronger US Dollar (USD), buoyed by robust US job market data for December.
The US Bureau of Labor Statistics (BLS) reported on Friday that Nonfarm Payrolls (NFP) rose by 256K in December, significantly surpassing market forecasts of 160K. The Unemployment Rate also ticked lower to 4.1% from 4.2% in November. However, annual wage inflation, measured by the change in Average Hourly Earnings, softened slightly to 3.9% from the previous 4%.
In contrast, the Euro (EUR) faces downward pressure due to dovish expectations surrounding the European Central Bank (ECB). Markets anticipate four interest rate cuts by the ECB, likely spread across upcoming meetings through the summer.
Gold prices marked a fourth consecutive day of gains on Friday as traders largely shrugged off stronger-than-expected US Nonfarm Payrolls (NFP) data.
Initially, gold prices dipped sharply following the release of robust labor market data by the US Bureau of Labor Statistics (BLS). However, bullion quickly recovered as market participants digested the implications of the report. While the strong job growth alleviated some concerns about economic slowing, it also underscored the Fed’s ongoing challenges in combating inflation, which recently ticked higher after the central bank lowered rates by 100 basis points in 2024.
The data appears to have reassured Fed officials that the labor market remains robust, even as the disinflation process has seemingly “halted,” according to the Fed’s latest meeting minutes.
Oil prices rallied nearly 3% on Friday, reaching their highest levels in three months, as traders prepared for potential supply disruptions stemming from the most extensive U.S. sanctions package yet targeting Russian oil and gas revenue.
The Biden administration announced a sweeping sanctions package aimed at Russia’s oil production and distribution networks. These measures target oil producers, tankers, intermediaries, traders, and ports, aiming to disrupt every stage of Moscow’s energy supply chain.
Extreme cold weather across the U.S. and Europe has added another layer of support for oil prices, with increased demand for heating fuels.
U.S. stocks sold off sharply on Friday, with the US 500 erasing its gains for 2025, as a stronger-than-expected jobs report reignited inflation fears and reinforced expectations that the Federal Reserve (Fed) will adopt a cautious approach to interest rate cuts this year. Wall Street’s main indexes closed lower for the second consecutive week, marking a rough start to the year.
While strong job growth signals economic strength, it could also lead to faster inflation. To counter persistent inflationary pressures, the Fed may maintain a conservative stance on rate cuts this year.
All eyes are now on the January 15 release of the monthly Consumer Price Index (CPI). A hotter-than-expected CPI reading could spark further market volatility.
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