DXY could make a move down to the 103.35 area

A lot is going on in FX markets today. We have some important US Job Openings data and key testimony from Fed Chair Jay Powell. Economists at ING analyze Dollar’s outlook ahead of these two key events.

Some key inputs to the Dollar story for this year

January JOLTS Job Openings data is expected to fall to 8.85 million from 9.03 million. More in focus is the 'quit rate' – i.e. what percentage of the workforce has voluntarily left work. At its peak in 2021 and 2022, nearly 3.5% of the workforce was quitting – reflecting very tight labour markets. The December 2023 reading had dropped to 1.8% (non-seasonally adjusted) and a further decline today would suggest that the US labour market is coming back into better balance and the pressure for higher wages is abating. A low number here is a Dollar negative.

The second big input is testimony from Federal Reserve Chair Jay Powell to the House. There is a good chance that Powell’s core message is one of successful disinflation and Fed rate cuts later this year. Equally, we would say that market pricing limits the extent to which the Dollar can rally today (unless we have completely misread the Fed!). We had felt that 75 bps of Fed easing would be the minimum the market would price this year. Last week the market cut its 2024 Fed easing expectations to just 78 bps and we are now back at 87 bps for the year.

There is of course big February US jobs data released on Friday, but if the above combination of events comes to pass today, DXY could make a move down to the 103.35 area.

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