US dollar starts 2024 with significant gains

Global markets await US NFP data this week

2 January 2024

Market close
  • Euro declines as disappointing economic data persists

  • Global markets await important economic data this week

  • Oil rises amid escalating geopolitical tensions in the Middle East.

US dollar saw significant gains

In the opening sessions of the year, the US dollar registered noteworthy gains. This upward trajectory coincides with market anticipation for critical economic data from the US, set to be released later in the week, which may significantly influence the future course of the dollar.

During Tuesday's trading, the US Dollar Index climbed 0.17% to 101.55, rebounding from a 2% slump over 2023. The dollar's decline marked its first back-to-back annual losses following a period of robust gains, spurred by the Federal Reserve's aggressive inflation-containment strategies.

Nevertheless, the dollar experienced a sharp downturn towards 2023's close, as the Federal Reserve signaled a potential cessation of its monetary tightening measures. Market expectations, as per CME Group, indicate a 73% likelihood of an interest rate cut at the forthcoming March meeting, potentially by 25 basis points. There's also a growing but still slim probability of a more substantial half-point rate reduction.

Investors are now keenly awaiting the US Non-Farm Payrolls (NFP) data, due next Friday. The labor market has been a cornerstone in supporting the Fed's tight monetary stance. Any indication of weakening growth in this sector could renew pressure on both the Federal Reserve and the US dollar, despite today's notable increase.

In contrast, key currencies like the Euro and the British Pound saw marked declines against the dollar. The Euro dropped by 0.17%, impacted by disheartening data that indicated a continuous contraction in the Eurozone's manufacturing sector for the eighteenth month in a row. Upcoming data on the Eurozone's services and manufacturing sectors is highly anticipated.

Oil prices bolstered by supply concerns

Oil markets experienced a surge in prices in today’s trading, amidst escalating concerns over potential supply shortages. The uptick in global prices follows Iran's deployment of a naval vessel to the Red Sea, heightening geopolitical tensions in the Middle East.

Brent crude soared by 2.5% to $78.97 per barrel, and WTI also saw a 2.5% increase, reaching $73.40 per barrel due to geopolitical tensions in the Red Sea.