China's offshore Yuan also hit five-month highs against the U.S. Dollar, while the Australian and New Zealand Dollars experienced significant rallies. The Dollar saw its biggest quarterly loss in 12 years in Q4 2022, largely due to the belief among investors that the Fed will not raise rates beyond 5%.
U.S. Economy Growing and Adding Jobs, But Overall Activity Showing Signs of Recession
Two reports released on Friday indicated that the U.S. economy is growing and adding jobs, but overall activity is leaning toward recession territory. The monthly employment report showed an increase in non-farm payrolls and a slowing in wage growth, while the Institute for Supply Management's non-manufacturing PMI fell to its lowest point in 2-1/2 years at 49.6. The outlook for price pressures, as indicated by consumer inflation data due later this week, is the main focus for investors.
Fed Fund Futures Show Likely 25-Basis Point Increase at February Meeting
After raising interest rates by 50 basis points in December and delivering four consecutive 75 basis point hikes in 2021, the Fed stated that it plans to keep interest rates higher for longer to control inflation. Fed fund futures now predict a 25-basis point increase at the February meeting. Analysts believe the tight labor market will discourage the Fed from slowing down anytime soon.
Rise in Riskier Currencies as China Reopens Borders
As China continues to lift its strict COVID-related movement restrictions and reopens its borders, optimism about a swift economic recovery has sent the offshore Yuan toward five-month highs against the U.S. Dollar. The Australian Dollar also rose by as much as 1.03% to $0.695, its highest against the U.S. currency since August 30, and the kiwi increased by 0.67% to $0.641, hovering around its highest point in three weeks. The Brazilian real has not yet traded due to the arrests of supporters of former President Jair Bolsonaro after they invaded Congress, the presidential palace, and the Supreme Court.