US dollar Remains Weak on Increase in Unemployment Claims

The US dollar, which has turned weak, following the soft JOLTS job openings data (5.88 million vs. 6.05 million expected), came under an increasing selling pressure on Wednesday after a Bloomberg report claimed that officials in China had recommended to the Peoples Bank of China to slow down the pace of Treasury bonds purchase or halt buying altogether. However, the concerns were put to rest after analysts questioned the reliability of the report.

Analysts argue that if China really wishes to stop buying, it will do so silently. Announcing the decision will only affect China, as it will lower the value of bonds held on its balance sheet. While it looked like the greenback would bounce back sharply on analysts’ opinion, a series of weak economic data released yesterday has ensured that the US dollar will continue on a downhill path.

According to the Bureau of Labor Statistics, the Producer Price Index (PPI) declined 0.1% in December, from the previous month. In October and November, the PPI climbed 0.4%. Economists had expected a 0.2% rise in PPI reading.
Excluding food and energy, core PPI fell 0.1% m-o-m in December, compared with a 0.3% rise in the earlier month. Analysts had expected a 0.2% increase in the core PPI.

Further, the weak PPI data has come in at a time when the import prices have shown a sharp moderation. Economists hope that the weak US dollar and the strong labor market will push the inflation towards the Fed’s 2% target, this year. Notably, Personal consumption expenditures (PCE), the preferred inflation measure of the US Fed, has been below expectations for the past five years.

The unemployment claims for the week ended January 6 was 261,000, an increase of 11,000 from the earlier week’s level of 250,000. The four week average was 250,750, representing an increase of 9,000 from the prior week’s average of 241,750. Economists had expected the unemployment claims to decline to a level of 246,000.
As it can be understood, the economic data reported yesterday will not be of great help to push the US dollar upwards.

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