Dollar tumbles after U.S. jobs report, service sector contraction

Employers added 223,000 jobs in December, more than economists’ forecasts of 200,000.

Wages also grew by 0.3% last month, a drop from 0.4% in November and below forecasts of 0.4%. That lowered the year-on-year increase in wages to 4.6% from 4.8% in November.

“There was a bit of a fear that this could be quite a blockbuster print in terms of job growth,” which was a risk due to seasonal adjustments that are common in December, said Mazen Issa, senior foreign exchange strategist at TD Securities in New York.

The easing wage growth was also “encouraging,” Issa added, though he noted that there were hawkish elements in the data.

“You had the unemployment rate dropping, which was not expected, and an increase in the participation rate,” Issa said. “This number doesn’t do anybody any favors in determining whether the Fed needs to do 25 or 50 at its next meeting.”

Atlanta Fed President Raphael Bostic said on Friday that the jobs figures did not change his overall assessment of where the economy is headed and that he would be comfortable with a rate hike of either 25 basis points or 50 basis points in February.
The greenback extended losses after the Institute for Supply Management (ISM) said its non-manufacturing PMI dropped to 49.6 last month from 56.5 in November. It was the first time since May 2020 that the services PMI fell below the 50 threshold, which indicates contraction in the sector that accounts for more than two-thirds of U.S. economic activity.

The Commerce Department also said on Friday that factory orders dropped 1.8% in November, after gaining 0.4% in October. Economists polled by Reuters had forecast orders falling 0.8%.

The dollar was last down 0.57% on the day against a basket of currencies at 104.50, after earlier reaching 105.63, the highest since Dec. 7.

The euro gained 0.64% to $1.0587, and the dollar fell 0.42% against the yen to 132.89.

The Federal Reserve hiked rates by 50 basis points at its December meeting, after making four consecutive 75-bp increases.

Fed funds futures traders increased bets the Fed will hike rates by 25 bps at the conclusion of its two-day meeting on Feb. 1 after Friday’s data. A 25-bp increase is now seen as a 75% probability, compared with 54% before the jobs report, with a 50-bp hike now seen as a 25% probability.

Highly anticipated consumer price data due on Jan. 12 could influence U.S. central bank policy.

It is expected to show that headline prices were unchanged in December while core prices increased 0.3%.