Dollar Slipped Last Week Amidst Tariff Jitters, Jobs Data

(RTTNews) - A mixed job market update from the U.S. late last week that added to the uncertainty surrounding the Federal Reserve's monetary policy lifted the dollar, but did not suffice to recoup the greenback's losses suffered in the trade tariff spat between the U.S. and some key trading partners.

In the week spanning February 3 to 7, the U.S. dollar gained against the euro but weakened against the British pound, the Australian Dollar as well as the Japanese Yen. The Dollar Index, which measures the Dollar against a basket of 6 specific currencies viz the euro, the Japanese Yen, the British pound, the Canadian Dollar, the Swedish Krona, and the Swiss Franc also declined during the past week.

The Dollar Index which had closed at 108.37 on January 31 in the backdrop of an expected uptick in PCE-based inflation readings and a hawkish pause by the Fed, opened on Monday, February 3 at 108.50. Escalation in tensions on the trade tariff front lifted the six-currency index to the week's high of 109.88 on Monday.

The ISM Manufacturing PMI for January from the U.S. released on Monday improved to 50.9 in January, from 49.2 in December. The first expansion in the factory sector after 26 consecutive months of contraction far exceeded market forecasts of 49.8 and supported the greenback.

However, a last-minute pause on the steep tariff threats announced for Mexico and Canada and counter tariff measures proposed by China bruised the dollar, dragging down the Dollar Index on Tuesday.

Tuesday's data release by the U.S. Bureau of Labor Statistics that the number of job openings declined to 7.6 million in December from 8.16 million in the previous month also dampened sentiment for the dollar. The reading missed the market consensus of 8 million, implying a gradual cooling in the labor market.

The slowing expansion in the services sector in the U.S. evidenced by the decline in the ISM Services PMI to 52.8 in January from a downwardly revised 54 in December also weighed on the dollar. Markets had expected a reading of 54.3.

It was Friday's job's data that provided some reprieve to the dollar after a whipsawing week. The index which had dropped to the week's low of 107.30 on Wednesday rebounded on Friday in the backdrop of mixed employment data.

Finally, Friday's non-farm payrolls data showed the U.S. economy added 143 thousand jobs in January, compared to an upwardly revised 307 thousand in December, and way below market forecasts of 170 thousand. However, contrary to market expectations of a steady level of 4.1 percent, the unemployment rate in the U.S. declined to 4 percent in January, boosting the Dollar. The index eventually closed at 108.04, recording a weekly loss of 0.30 percent.

The EUR/USD pair dropped 0.34 percent during the week ended February 7, as investors braced for the tariff warnings that Trump has repeatedly issued against Europe. The EUR/USD pair which had jumped from the week's low of 1.0146 on Monday to the week's high of 1.0444 on Wednesday tumbled on Friday in the aftermath of the U.S. jobs data. The pair closed at 1.0327 on Friday as compared with 1.0362 a week earlier. Preliminary estimates released on Thursday that showed annual inflation in the Euro Area edging up to 2.5 percent in January from 2.4 percent in the previous month, limited losses.

The GBP/USD pair too moved in tandem with the EUR/USD pair, jumping from the week's low of 1.2248 touched on Monday to the week's high of 1.2552 on Wednesday. The pair gained 0.15 percent during the week, closing at 1.2409, versus 1.2390 a week earlier. The pair's moves came amidst the Bank of England cutting rates by 25 basis points, in line with expectations.

The AUD/USD pair rallied during the week ended February 7, gaining close to a percent as markets digested China's measured response to tariff threats by the U.S. The pair closed at 0.6271, versus 0.6211 a week earlier, recording a surge of 0.97 percent. The pair ranged between the low of 0.6087 recorded on Monday and the high of 0.6301 recorded on Friday amidst expectation that the recent trade war would not assume global dimensions.

The USD/JPY pair tumbled 2.44 percent during the week spanning February 3 to 7 amidst hawkish hints from Bank of Japan and better-than-expected Japanese wage data. The pair closed on February 7 at 151.40, versus 155.18 a week earlier. The weekly trading range was between the high of 155.89 recorded on Monday and the low of 150.94 recorded on Friday.

On the horizon are Fed Chair Jerome Powell's Congressional testimony and the monthly updates on consumer price inflation, producer price inflation and retail sales from the U.S. Ahead of these, fresh announcements on trade tariffs by the U.S. has heightened inflation concerns and dampened hopes of an immediate rate cut by the Fed. Amidst the lingering turbulence, the Dollar Index has increased to 108.23.

The EUR/USD pair has fallen to 1.0321 whereas the GBP/USD pair has decreased to 1.2388. The AUD/USD pair has edged up to 0.6282. The USD/JPY pair has in the meanwhile rallied to 151.82.