A better-than-expected US payrolls number on Friday affirmed investor expectations for a hike in US interest rates next week and supported the US dollar, which rose against a basket of currencies for a fourth consecutive day.
Futures markets are now pricing in a 90.2% probability of the Federal Reserve raising the target range for the Fed funds rate by a quarter-point to 1.25-1.5% on Thursday (Wednesday in the US), and the futures-derived probability of an additional quarter-point hike by March 2018 increased to 55%.
The US Bureau of Labor Statistics said on Friday that 228,000 new jobs were created in November – ahead of the market forecast of 198,000 – and that average hourly earnings rose by 0.2%. Wage growth is seen in the eyes of many analysts to be of equal importance to the headline number and for that reason some were left slightly disappointed given the forecast for growth of 0.3%. November’s wage performance did, however, represent a drastic improvement on that from October, during which wages fell by 0.1%. The unemployment rate in the US was unchanged at 4.1%.
The dollar did best on Friday against the Japanese yen and British pound, against which it ended the week at 113.45 and 1.3382 respectively. The dollar was little changed against the euro at 1.1769. On the week, the dollar was higher against all seven of the other FX majors and the majority of emerging market currencies.
Thai Baht at 31-Month High
Meanwhile, in Southeast Asia, concerns are mounting among Thai exporters and the private sector in general as Thailand’s currency, the baht, continues to trade near multi-year highs (USD/THB lows). In late November the baht strengthened to 32.495 against the dollar – the baht’s most expensive valuation since April 2015 – and since then the currency has refused to concede much ground. The baht ended the week at 32.63.
The value of the baht in relation to its Asian peers is of paramount importance to Thailand given that exports account for roughly 60% of the country’s economy. Although the baht’s year-to-date gain of 9.8% against the dollar matches that of the Malaysian ringgit, it represents a significant outperformance against the currencies of other manufacturing hubs in the region, including the Chinese yuan, which has gained only 4.8% this year, and the Philippine peso, which has weakened by 1.8%.
Bitcoin Futures Go Live
Sunday emerges as an important day in the history of cryptocurrencies, with that being the first day of trading in US bitcoin exchange-traded futures. CBOE Global Markets will go live with its bitcoin contract – ticker XBT – amid an outrageous level of volatility in the cryptocurrency. The value of bitcoin rose 40% on Wednesday and Thursday – a move of nearly $5,000 – before crashing 20% in just ten hours on Friday. Bitcoin is up nearly 1500% this year to levels above $15,000.
The value of bitcoin has surged in recent weeks following the announcements by major US derivatives exchanges of the introduction of bitcoin futures. Further to the CBOE, the CME will introduce its own futures contract later in December – ticker BTC – and NASDAQ plans to release one sometime in early 2018.
“The adoption of bitcoin futures trading by US exchanges should help to further legitimize the cryptocurrency,” says The Motley Fool’s Beth McKenna.
“The growth of bitcoin derivatives is another step towards the development of the digital currency as a more established asset class,” says CNBC.
Since bitcoin futures are likely to be used for speculation as well as hedging and can be traded on margin by retail investors, their introduction has not been universally welcomed.
Concerns about bitcoin futures were raised this week by the US Futures Industry Association who suggested in an open letter that clearing houses had not yet had sufficient time to study trading limits and other necessary characteristics of a safe bitcoin market. A “more thorough and considered process” is needed, said the FIA.
Speaking to the Wall Street Journal, one broker said that rather than having a calming influence, bitcoin futures would add “rocket fuel to the [current] volatility.”
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