The United States dollar index or it is also called as DXY skyrocketed more than 1 percent to the 102.80s. It was happened after the release of Nonfarm Payroll (NFP) and Purchasing Managers' Index (PMI) data two days ago.
Both displayed outstanding performances, thus triggering a rebound of the greenback against all major currencies. AUD/USD and NZD/USD were instantly mired at about 2 percent.
Meanwhile, the EUR/USD plunged to 0.9 percent to the 1.0800s range. Elsewhere, the GBP/USD subsided 1.3 percent to the 1.2060 range.
USD/JPY also rose nearly 2% above the 130.00 threshold. The US department of Labor reported that non-farm payrolls increased by 517k in January 2023.
US Employment Data is Green
The increasing NFP was almost three times higher than the market estimate (185k), while breaking the slowing trend that has been going on for the past four months.
Meanwhile, the December 2022 NFP data was revised up from 223k to 260k. Details of other United States employment data are also green. The unemployment rate fell from 3.5% to 3.4%.
For your information, the previous consensus predicted an increase to 3.6%. Data on average hourly pay grew 4.4% for year on year type which was weaker than the previous period.
However, it was more popular than the estimate pegged at 4.3%. The series of data signals that the labor market in America is still "overheating," even though the Fed has sought to temper that with jumbo rate hikes over the past year.
NFP Increase is Quite Huge
The rate of inflation has the potential to be entrenched longer at high levels as long as it happens. Consequently, the market again expects an increase in interest rates from the Fed.
The idea that the Federal Reserve rate hike cycle ends sooner than the ECB or the BoE is likely questionable. This was said by Kathy Jones, a head of fixed income strategy at Charles Schwab.
It can be seen that the NFP increase is huge which may contain seasonal elements. However, it's admirable with gains and revisions that are well above expectations.
The average (NFP) increase in 2022 is 401k as said by Greg Michalowski of Forexlive. Non-Manufacturing PMI data further hints that the US economy may only experience a slowdown.
US Economy Is Steady This Year
The condition above was as well as avoid a recession. The ISM reported its score rose significantly from 49.2 to 55.3, signaling economic activity in the sector has returned to expansive conditions.
The rally of the United States dollar index began to recede back to the range of 102.55 as the news was written. Market participants may need more time to examine the implications of these latest data.
However, it is clear that the numbers show the US economy is starting 2023 at a steady pace. Elsewhere, ECB some nights ago raised their interest rates in line with market expectations, by 50 basis points.
The Bank of England (BoE) showed the most dovish stance. That was especially if it was compared to the other two major central banks that both held regular meetings this week.
Pound Sterling has a Worse Performance
As a result, the pound sterling became one of the worst-performing major currencies in the New York session on 2 of February. GBP/USD subsided about 1 percent until it touched a two-week low of 1.2239.
Meanwhile, the EUR/GBP even briefly broke above the 0.8950 threshold and set a record high since September 2022. Yesterday night’s BoE meeting raised their interest rates again by 50 basis points.
It means that the rate was in 4.0 percent, in line with market expectations. Voting results showed seven of the nine members supported the hike, while the other two hoped for a fixed rate.
The BoE believes inflationary pressures are stronger than expected, so there is a risk of further hikes. However, they failed to show a firm commitment to continue the cycle of rate hikes.
