The US dollar was slumping before the weekly initial jobless claims data but fell further afterwards as yesterday’s US dollar strength unravels.
USDJPY 10 mins
Initial jobless claims rose to the highest since 2021 in a surprise spike that could be an indicator of emerging weakness in the US economy. Jobless claims are seen as one of the best leading indicators of the jobs market. That said, it’s one week and recent data shows claims falling, not rising.
The US dollar was volatile yesterday for no clear reason but a softening jobs market would be a fundamental driver. The implied odds of a June Fed hike are down to 25% from 30% at the start of the week.
It’s clear to me what we’re about to enter a period of economic softness but the severity may depend on how willing central banks are to forgo hikes and to signal rate cuts for 2024. I expect them to be reticent to do so but if (when) CPI falls below 4% in the summer months, an easing of hawkish rhetoric would be a first step.