USD consolidates near weekly lows amid weak labor data – BBH

US Dollar (USD) is consolidating this week’s losses and trading near the lows of the week. Global equity markets keep grinding higher while long-term sovereign bond yields remain under modest upside pressure. US 10-year Treasury yields are up nearly 10bps this month to 4.11%, mostly reflecting firmer inflation expectations. 10-year Treasury yields have been range-bound between 3.95%-4.20% over the past three months, BBH FX analysts report.

Fed rate cut bets gain traction as job growth slows

"US weekly jobless claims confirm there is no layoff spiral underway. Initial claims for the week ended November 29 dropped to 191k (consensus: 220k) vs. 218k the previous week, just shy of the September 2022 record low of 189k."

"Nevertheless, US labor demand is weak. Revelio labs non-farm employment (private and public) fell -9k in November vs. -15.4k in October. That data comes on the heels of a poor ADP print, which showed private sector employers shed -32k jobs in November. We see rising risk that the Fed front-loads rate cuts toward neutral levels (near 3%) to prevent the hiring slump from morphing into widespread firing. That can further weigh on USD."

"The September Personal Consumption Expenditure (PCE) report is due today (3:00pm London, 10:00am New York). Headline and core PCE deflators are both expected at 2.8% y/y vs. 2.7% and 2.9% in August, respectively. While progress towards the Fed’s 2% inflation goal is stalling, upside risks to prices are not martializing, leaving room for the Fed to ease policy. The ISM prices paid indexes point to moderating inflation pressures."