The US dollar fell on Friday (Jan 6) after US jobs data showed a strong, but not blockbuster employment picture in December, while a separate report showed that US services industry activity contracted for the first time in more than 2-1/2 years that month.

Employers added 223,000 jobs in December, more than economists’ forecasts of 200,000. Wages also grew 0.3 per cent last month, less than the 0.4 per cent in November and below forecasts of 0.4 per cent. That lowered the year-on-year increase in wages to 4.6 per cent from 4.8 per cent in November.

“There was a bit of a fear that this could be quite a blockbuster print in terms of job growth”, which was a risk due to seasonal adjustments that are common in December, said Mazen Issa, senior foreign exchange strategist at TD Securities in New York.

The easing wage growth was also “encouraging”, Issa added, though he noted hawkish elements in the data.

“You had the unemployment rate dropping, which was not expected, and an increase in the participation rate,” Issa said. “This number doesn’t do anybody any favours in determining whether the Fed needs to do 25 or 50 at its next meeting.”

The US dollar fell 1.17 per cent on the day against a basket of currencies to 103.88, after reaching 105.63, the highest since Dec 7.

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The euro gained 1.19 per cent to US$1.0645 and was on track for the biggest percentage daily increase since Nov 11. The US dollar fell 1.03 per cent against the Japanese yen to 132.07.

The greenback extended losses after the Institute for Supply Management (ISM) said its non-manufacturing PMI dropped to 49.6 last month from 56.5 in November. It was the first time since May 2020 that the services PMI fell below the 50 threshold, which indicates contraction in the sector that accounts for more than two-thirds of US economic activity.

The Commerce Department also said on Friday that factory orders dropped 1.8 per cent in November, after gaining 0.4 per cent in October. Economists polled by Reuters had forecast orders falling 0.8 per cent.

Atlanta Federal Reserve President Raphael Bostic said on Friday that the latest US jobs data was another sign that the economy is gradually slowing and should that continue, the Fed can step down to a quarter percentage point interest rate hike at its next policy meeting.

Richmond Fed President Thomas Barkin also said the US central bank’s move to smaller interest rate hike increments would help limit damage to the economy.

The Fed hiked rates 50 basis points (bps) at its December meeting, after making four consecutive 75-bp increases.

Fed funds futures traders increased bets that the Fed will hike rates by 25 bps at the conclusion of its two-day meeting on Feb 1 after Friday’s data. A 25-bps increase is now seen as a 73 per cent probability, compared with 54 per cent before the jobs report, with a 50-bps hike now seen as a 27 per cent probability.

Highly anticipated consumer price data due on Jan 12 could influence US central bank policy. It is expected to show that headline prices were unchanged in December while core prices increased 0.3 per cent. REUTERS