USD traded higher against all of the major currencies on Thursday with the exception of the JPY. The US Federal Reserve is scheduled to meet next week and faster removal of policy accommodation is widely anticipated. Thursday’s jobless claims report confirms that the labor market is blazing hot.
The number of new jobless claims dropped to 185,000 last week, its lowest level since 1969, a 52 year low. Weekly claims can be very volatile but there’s been an irrefutable downtrend trend that reflects the tightness of the labor market. Employers are reluctant to lay off workers when there’s a shortage of willing applicants which can be problem for wage growth.
US inflation numbers will be released on Friday and economists are looking for the monthly CPI growth rate to slow and the annualized rate to accelerate. Given Fed Chairman Powell’s recent comment that it is time to retire the word “transitory” from their inflation description, prices will rise at its fastest pace in 30 years with a good chance of an upside beat in monthly CPI.
Gas prices were high throughout the month of November with many Americans reporting an increase in the costs of Thanksgiving dinner. Traders are cautiously buying USD and selling stocks ahead of Friday’s US CPI report. If inflation is stronger than expected, rate hike bets will increase, driving the USD higher against EUR, GBP and CAD and taking stocks lower.
The stronger USD also drove oil prices lower.
The rising USD also took EUR/USD below 1.1300. While a smaller trade surplus for Germany may have contributed to the move, the real worry is that Eurozone nations will follow the UK in imposing new restrictions. The daily case count in the UK is at its highest level since January. Calls are growing for restrictions ahead of Christmas holidays.
GBP could be affected by monthly GDP and industrial production numbers – both of which are expected to be stronger. The Bank of England meets next week and investors will be eager to see if Omicron has affected their plans to remove stimulus.