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US Dollar Weakens as Jobless Claims Fall and Manufacturing Data Strengthen

Matt Eidinger January 21, 2021

The American labor market licked its wounds last week as initial jobless claims declined, but remained at elevated levels, while the manufacturing sector provided some optimistic guidance in separate data releases this morning.

In the minutes after this morning’s dual releases from the Labor Department and the Federal Reserve Bank of Philadelphia, the greenback fell 0.25% to a three year low against the Canadian dollar. On a trade-weighted basis, the US dollar held firm just above the 90-point mark – halting a 0.4% decline that began overnight.

In the first place, the labor market registered 900,000 new claims for unemployment benefits last week – a slight improvement from last week, but still a weak number that compounds fears of a severe stall in the labor market’s recovery.

Claims related to pandemic unemployment assistance and pandemic unemployment compensation fell a combined 2.8 million during the week ending January 2. Preliminary data indicates most new claims last week were concentrated in Arizona (+15,000) and Illinois (+14,000).

Continuing claims for the week ending January 9 totaled just over 5 million – reversing course from last week’s 110,000 increase and falling to the lowest levels in ten months. However, the level of continuing unemployment claims remains high and will likely continue to have trouble returning to pre-pandemic levels without an end to lockdowns and taming of the coronavirus.

Separately, the Federal Reserve Bank of Philadelphia reported regional manufacturing activity rose notably this month. According to the diffusion index of 26.5, modest expansionary activity was evident in the greater Philadelphia area.

Beneath the headlines, the indices for employment, new orders and current shipments all rose double digits. There were no business indices that witnessed decreases this month. Manufacturing firms surveyed also reported increased demand for their products, both at present and expect that this will continue through the next six months.

Today’s news comes on President Joe Biden’s first full day in office in a term that may prove to be a more politically complicated that it would initially appear.

Biden’s recently announced COVID-19 economic relief package, which totals $1.9 trillion dollars – nearly as big as the original CARES act from March 2020 – was talked up by US Treasury Secretary nominee Janet Yellen during her confirmation hearings earlier this week.

​”It’s really critically important to provide this relief now,” the former Fed chairwoman asserted in prepared remarks. Indeed, the multi-trillion-dollar stimulus bill includes additional unemployment benefits that could help to prop up consumer spending, which has faltered since December.

Still, with Democratic control of the White House and slim margins in both the House of Representative and the Senate, most legislative votes will come down on party lines. Vice President Kamala Harris will be frequently required to step in to break ties, and moderates in both parties may be relied on more often in Joe Biden’s presidency than in the recent past.

 

Matthew Eidinger
Market Strategist & Fintech Specialist

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