Dollar remains strong after mixed US data

ADP and job openings miss but ISM non-mfg PMI improves - Dollar gains more ground ahead of Friday’s nonfarm payrolls - Yen flat amid wages slowdown and China-Japan spat - Wall Street pulls back on Venezuela headlines; oil extends slide
XM Group | 237 days ago

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US data mixed; Friday’s NFP to clear the fog

The US dollar continued to trade higher against its major peers on Wednesday, staying strong against the risk-linked aussie, kiwi and loonie today.

Yesterday’s ADP report confirmed a rebound in private employment during the month of December, but the rebound was not strong as expected, while the JOLTS job openings for November came in weaker than expected, corroborating the weakness in the labor market during that month revealed in other jobs data.

That said, what may have helped the dollar stay strong was the better-than-expected ISM non-manufacturing PMI for December, with its employment sub-index rebounding into expansionary territory for the first time since June.

Although the rebound in the ADP figure was not as strong as expected, combined with the improvement in the employment sub-index of the ISM non-mfg PMI, they suggest that Friday’s NFP may come in strong as well. After all, non-manufacturing activity accounts for around 90% of US GDP.

Having all that in mind, a strong employment report on Friday may convince market participants that 60bps worth of rate cuts may be too many for this year, especially with the Atlanta Fed GDPNow model indicating that the world’s largest economy ended 2025 on a solid footing.

Yen trapped between a rock and a hard place

The Japanese yen slid somewhat yesterday, but it is staging a comeback today. The uptrend in dollar/yen stalled following the BoJ’s December rate hike and its willingness to continue raising interest rates, with the intervention warnings by Japanese authorities also prompting traders to hit the brakes.

However, the yen is not capitalizing on those developments either, perhaps as market participants wanted stronger signals by the BoJ about when it could raise interest rates again.

What’s more, escalating tensions between China and Japan could complicate the BoJ’s job, as the world’s second-largest economy restricted the export of goods with potential military applications to Japan, in response to comments by Japan’s PM Takaichi on Taiwan in late-2025. The notable slowdown in November job salaries revealed in overnight data is also a reason for concern as wage growth is a vital variable for the BoJ when it comes to raising interest rates.

Stocks pull back, oil weakens on geopolitics

On Wall Street, the tech-heavy Nasdaq added some gains yesterday, but both the S&P 500 and the Dow Jones pulled back after hitting new record highs, with the latter losing nearly 1%. Today, stock futures are in the red.

Maybe the pullback is owed to comments by top US officials, who said yesterday that they need to control Venezuela’s oil indefinitely to stabilize the nation’s economy, increasing the uncertainty surrounding the geopolitical landscape.

However, talking about a bearish reversal on Wall Street appears both premature and unwise. The AI euphoria continues to be bolstered by news headlines, the Fed is on track to further lower borrowing costs, while economic activity and earnings growth remain robust. The only downside risk is extreme valuations.

Oil prices extended their slide on the prospect of easing sanctions on Venezuelan oil and thereby higher output.

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