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US Dollar Holds Steady as Jobless Claims Rise for Third Week

Matt Eidinger February 18, 2021

Although it strengthened earlier this week, the US dollar has this morning failed to buck the broader trend of weakness witnessed in recent weeks.

New labor and manufacturing data, released earlier this morning, indicated more layoffs than expected in the United States, but an improvement in manufacturing conditions.

As news hit the wire, the US dollar rose a modest 20 pips against its northern peer the Canadian dollar. On the other hand, on a trade-weighted basis, the Big Dollar is 0.4% lower after this morning’s news.

The US Department of Labor reported a jump in initial claims for unemployment insurance for the third week in a row last week – up 13,000 to 861,000, which represents a notably worse data point than was expected.

The previous week’s figures were also revised upwards by 53,000 to 848,000.

In contrast, continuing claims for unemployment insurance declined – moving down by 64,000 to 4.5 million and marking the fifth straight week of gains as the trend of easing COVID-19 restrictions in jurisdictions around the country continues.

Pandemic and extended unemployment assistance programs fell a combined 1.1 million. Still, these figures remain highly elevated as of the 30th of January – the most recent week for which figure are available.

Considering this morning’s release, an improvement in the conditions of both the US labor market and the overall economy is clear. However, as the FOMC meeting minutes pointed out yesterday, “…the economy remain[s] far from the Committee’s longer-run goals and that the path ahead remain[s] highly uncertain” due to the ongoing risks posed by COVID-19.

The recent figures from the labor department on claims for unemployment insurance – which, at best, demonstrate a diminishing rate of improvement each week and fumbling back and forth between modest declines and improvements at worst – put yesterday’s comments from the Fed meeting minutes into context. According to the FOMC minutes the “pace of improvement in the labor market had [also] slowed in recent months.”

There still appears to be a long way to go until the US labor market fully recovers and is able to drive the economic recovery more fully. With this in mind, hopes for a more expedient recovery will depend critically on taming the coronavirus, since labor market gains will evidently remain capped until the virus has been brought under control.

Separately, the Federal Reserve Bank of Philadelphia reported an increase in regional manufacturing activity, although the pace was slower than last month.

The specter of inflation remained in focus, as manufacturing managers indicated an expectation prices received for their goods would increase 3% over the next year. Similarly, the current index for prices paid rose 9 points to 54.4 – indicating inflationary pressures may already be emerging in the manufacturing sector.

Matthew Eidinger

Market Strategist & Fintech Specialist