USD bounces after hitting ten-week low – BBH

USD recovered strongly against all major currencies after hitting a ten-week low yesterday. Gold and crude oil prices got a modest boost after the US ratchet-up pressure on Venezuela. President Donald Trump ordered a total blockade of all sanctioned oil tankers going into and leaving Venezuela. Global equity and bond markets are stable, BBH FX analysts report.

Oil and Gold receive modest boost from Venezuela blockade

"USD bounce looks more like a technical relief rally. Fundamentals still favor a lower USD. The FOMC has room to deliver the 50bps of easing priced-in by Fed funds futures over the next twelve months because US labor demand is weak and upside risks to inflation are not martializing. We anticipate USD to edge down to the lower end of its June-December range as it converges towards the level implied by US-G6 rate differentials."

"Slower wage growth indicates growing labor market slack. Average hourly earnings rose just 0.1% m/m in November (consensus: 0.3%) or 3.5% y/y, the lowest annual rate since May 2021. In parallel, the unemployment rate unexpectedly ticked-up 0.1pts to 4.6% (consensus: 4.5%), the highest since September 2021 and above the FOMC 2025 projection of 4.5%. However, more people entered the labor force as the participation rate increased 0.1pts to 62.5%."

"No policy relevant US data today. A speech by Fed Governor Christopher Waller on the economic outlook takes the spotlight. Waller’s shot for the Fed chair job improved this week, alongside that of Kevin Warsh, as doubts emerged over frontrunner Kevin Hassett. President Donald Trump is scheduled to interview Waller today."