US dollar index ends week lower

Despite strong US jobs data (ADP and NFP) the US dollar index, which gauges the US dollar against its main competitors, is about to post the sixth weekly decline in a row. Also, the FOMC statement on Wednesday did not boost the US Dollar. 

Late during Friday’s American session, Fed’s Williams mentioned that he sees some argument to raise rates in March and moved the US dollar to the upside, helping it, to trim losses. 

Today, NFP surpassed expectations (227K  vs 175K) but wage growth rose less-than-expected. “The job market also pulled more Americans in from the sidelines; as the labor force participation rate rose 0.2 percentage points to 62.9 percent, giving the slight uptick in unemployment to 4.8 percent some positive light. Average hourly wage growth was softer than expected, particularly if the labor market is at full employment; this bears watching for the next few months. We still expect inflation to move to the two percent target this year, prompting two rate hikes, with the first move in June”, said analysts at Wells Fargo. 

USD outlook 

The US dollar index continues to move with a bearish bias in the short-term, making a correction, after hitting 14-year highs above 103.00, back in January. It is about to end the week around 99.80/90, far from yesterday’s lows, it reached at 99.20. 

“Our view on the USD is for it to strengthen over the coming 1-3 months as we get more details on Trump’s fiscal policy plans. In addition, if Trump’s response to what he sees as undervalued currencies elsewhere is an import border tax, this would be USD positive as it would support US exports and hurt imports”, wrote analysts from Danske Bank. 

On the medium and long-term, they see USD weakness: “Gravitational forces should pull it weaker as current account flows strongly favor the euro area and the USD is overvalued on our medium-term valuation models.”