Dollar Gains Ground as US Labor Resilience Dims Rate Cut Hopes

The US Dollar extended its advance against major peers on Thursday after fresh data signaled the American labor market remains remarkably tight, complicating the Federal Reserve's path toward monetary easing.

Jobless Claims Defy Gravity

According to the US Department of Labor, Initial Jobless Claims dropped to 198,000 for the week ending January 10, significantly undercutting market expectations of 215,000. This marks the lowest level since November, reinforcing the narrative that despite high-profile corporate layoff announcements, the broader employment landscape remains fundamentally robust.

The four-week moving average, a less volatile measure of labor trends, slid to 205,000, a nearly two-year low.

Treasury Yields and FX Reaction

The data triggered an immediate repricing in fixed income markets. Bond traders pared back bets on aggressive rate cuts, pushing the 2-year Treasury yield up approximately 4 basis points to 3.5%. This yield surge provided fresh tailwinds for the Greenback:

• EUR/USD slipped further, testing support near the 1.1600 handle.
• USD/JPY remains in consolidation, though strong US data is countering fears of Japanese intervention.
• AUD/USD held steady around 0.6680, as Australian inflation data offered mixed signals.

Fed Officials Remain Cautious

The robust data aligns with recent hawkish commentary from Federal Reserve officials. Atlanta Fed President Raphael Bostic emphasized on Thursday that inflation pressures are likely to persist, necessitating a restrictive stance. Similarly, Chicago Fed President Austan Goolsbee noted the enduring strength of the job market, suggesting the central bank is in no rush to lower borrowing costs before price stability is assured.

Market focus now shifts to whether this labor resilience will translate into sticky service-sector inflation in upcoming CPI reports.