Asian session review: the US dollar is showing positive dynamics

During today's Asian trading, the US dollar rose slightly against major currencies, reaching its highest level since December 11, as recent US data reduced the likelihood of easing the Fed's monetary policy in the near term.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.12% to 104.05. On Friday, the index rose by 0.85% on the back of stronger-than-expected data on the US labor market. The Ministry of Labor said that nonfarm payrolls increased by 353,000 in January, exceeding economists' expectations (+180,000). The unemployment rate was unchanged from the previous month (3.7%), while economists had expected an increase to 3.8%. Meanwhile, the average hourly wage rose by 0.6% after an increase of 0.4% in December. Consensus estimates suggested an increase of 0.3%. This was the largest increase since March 2022. Overall, the labor market data justified the wait-and-see attitude of Fed Chairman Jerome Powell, who said over the weekend that Fed can be "prudent" in deciding when to cut its benchmark interest rate, with a strong economy allowing central bankers time to build confidence inflation will continue to slow. Against this background, market participants further reduced the likelihood of a March easing of monetary policy and reduced the number of rate cuts they expect from the Fed this year. According to the CME FedWatch Tool, markets see a 15.5% probability of a 25 basis point rate cut at the Fed meeting in March and a 68.4% probability of a rate cut in May, with 120 basis points of cuts priced in for this year.

Chinese yuan fell 0.1% against the US dollar, reaching its lowest level since November 20. A report from Caixin/S&P Global showed that the services PMI fell to 52.7 in January from 52.9 in December. Economists had expected an increase to 53.0. The index has remained in the expansionary territory for 13 straight months. There was another sharp increase in the overall new business driven by firmer underlying demand conditions and new customers. On the price front, cost inflation increased only slightly in January. Meanwhile, prices charged by service providers declined for the first time since April 2022. Business sentiment remained strong underpinned by upbeat growth projections, increased customer numbers and planned company expansion. However, the degree of optimism fell to a 3-month low.