USD Index turns negative around 105.00 as investors digest US NFP

• The index fades the earlier advance past the 105.60 level.
• The US economy added more jobs than expected in December.
• The wage growth seems to have lost momentum in the last month.

The USD Index (DXY), which tracks the greenback vs. a bundle of its main competitors, gives away initial gains and returns to the negative territory below the 105.00 mark on Friday.

USD Index looks offered post-Payrolls

The index quickly leaves behind the earlier uptick to 4-week highs in the 105.60/65 band and slips back to the sub-105.00 region as investors continue to digest the publication of the Nonfarm Payrolls.

On the latter, the US economy added 223K jobs in December and the jobless rate ticked lower to 3.5% (from 3.6%). The salient point of the labour market report, however, comes from the performance of the wage growth tracked by the Average Hourly Earnings, which came on the soft note after it expanded 0.3% MoM and 4.6% YoY.

The loss of momentum in the wage growth appears to lend some oxygen to the view that the Fed could pause its tightening plans in the near term, which eventually puts the dollar under some selling pressure along with declining US yields across the curve.

Other than Payrolls, the US calendar will show the ISM Non-Manufacturing, Factory Orders and speeches by Atlanta Fed R.Bostic (2024 voter, hawk), FOMC Governor L.Cook (permanent voter, centrist) and Richmond Fed T.Barkin (2024 voter, centrist).

What to look for around USD

The dollar falters in the area of multi-week peaks, as the latest NFP release seems to have torpedoed the Fed’s tighter-for-longer narrative.

However, the idea of a Fed’s pivot has been pushed further back following the publication of the FOMC Minutes on Wednesday, where the Committee advocated the need to remain within a restrictive stance for longer, at the time when it ruled out any interest rate reduction for the current year.

Furthermore, the tight labour market, still elevated inflation and the resilient economy are also seen supportive of the firm message from the Federal Reserve and its hiking cycle.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, ISM Non-Manufacturing PMI, Factory Orders (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.04% at 105.10 and the breakdown of 103.39 (monthly low December 30) would open the door to 101.29 (monthly low May 30) and finally 100.00 (psychological level). On the upside, the next hurdle turns up at 105.63 (monthly high January 6) seconded by 105.82 (weekly high December 7) and then 106.31 (200-day SMA).