It’s one step from love to hate. The first week of February was the best for the US dollar in a month. The stock market was spooked by artificial intelligence, gold and bitcoin were falling uncontrollably, and investors had no choice but to look for safe havens. They became treasuries and greenback. However, at the end of the five-day period, everything turned upside down. Unsurprisingly, the EURUSD bulls launched a counterattack.
The success of the US dollar was due, among other things, to the curtailment of short positions. As of February 3, net American shorts reached their highest levels since July. The search for reliable assets forced speculators to close them. However, the “bears” on the greenback can easily return, because it will have to pass a severe test with reports on the labor market and inflation.
Bloomberg experts expect consumer prices to slow to 2.5%, unemployment to 4.4% and employment growth of 69 thousand. However, there are risks that non-farm payrolls for the previous months will be revised downwards. This is fraught with a shift in the expected timing of the Fed’s rate cuts from June to April, which will weaken the position of the US dollar.
The labor market is going through difficult times. Hiring is at its slowest pace since 2003, if we exclude the global economic crisis of 2008-2009 and the pandemic of 2020. Tariffs force companies to optimize costs and reduce employees. Artificial intelligence is making the situation worse. As are the still high stakes. If we add the desire of employees to hold onto their jobs with their teeth, the slowdown in employment looks logical.
The Fed has already preemptively lowered rates three times to throw a lifeline to the labor market. However, if it continues to cool down, the central bank will have no choice but to resume the cycle. Bad news for greenback.
The pressure on him was exerted by Scott Bessent’s statement about the absence of contradictions in his rhetoric and the words of the US president. At the end of January, Donald Trump welcomed the decline in the USD index. The finance minister spoke about the policy of a strong dollar. The Treasury secretary noted that the policy of a strong dollar is to create a strong backdrop for the US currency, including tax, trade, deregulation and energy policies. Another thing is, will greenback use it? You can lead a horse to water, but you can’t force him to drink.
