The United States labor market exhibited unexpected resilience in December 2023, as the latest employment data revealed a stronger-than-anticipated performance. The Nonfarm Payrolls increased by 256,000, surpassing expectations and reflecting an upbeat jobs report that influenced the financial markets. Despite the positive employment figures, the unemployment rate rose nearly a percentage point compared to the previous year, marking its second-highest level since 2017, excluding the pandemic period of 2020/21. The robust job growth provided support to the US Dollar, impacting various currency pairs and commodities in the financial markets.
The December labor market numbers exceeded predictions, with the Nonfarm Payrolls showing a significant increase. This development has benefited the US Dollar, bolstering its strength against other major currencies. The GBP/USD pair extended its weekly decline, trading at its lowest level since November 2023, falling below 1.2250. Similarly, the EUR/USD remained under bearish pressure, trading below 1.0300 during the American session on Friday.
"We continue to think it is unlikely that the broader uptrend in the unemployment rate has ended (the 3-month average rate continued to rise in December) with hiring demand (job openings) still running well below year-ago levels."
The upbeat labor market report did not go unnoticed in the commodities sector. Gold regained its footing and climbed above $2,680 after briefly dropping towards $2,660. The risk-averse market environment continues to support XAU/USD, even amidst the renewed strength of the US Dollar. This scenario highlights the complexity of current economic conditions where traditional safe-haven assets like gold benefit from uncertainties despite stronger dollar performance.
In contrast, the cryptocurrency market showed mixed reactions. Sui's price managed to recover most of its weekly losses, trading around $5.06 as of Friday. On-chain metrics suggest a potential rally for SUI, with its long-to-short ratio reaching its highest level in over a month and open interest rising.
"We continue to expect that ultimately the BoC will need to cut the overnight rate to slightly 'stimulative' levels this year – below the 2.25% to 3.25% the BoC currently estimates as the likely range for the current neutral rate."
The Bank of Canada (BoC) has flagged interest rates as no longer clearly at 'restrictive' levels, with inflation aligning closer to their 2% target. The pace of rate cuts is expected to be gradual and dependent on evolving economic data.
"The Bank of Canada (BoC) already flagged in December that with interest rates no longer clearly at 'restrictive' levels, and inflation running back around the central bank's 2% target, the pace of rate cuts will be more gradual, and contingent on the evolution of economic data, going forward."