The dollar index extended its decline for a fourth consecutive session, slipping below 104 on Thursday to a fresh low not seen since November, as investor sentiment remained fragile amid concerns over tariffs and the US economic outlook.
Dollar remains under heavy pressure
The recent weakening of the dollar was further compounded by growing apprehension over the widening US trade deficit, which surged to a record high in January. This was largely driven by a 10% surge in imports ahead of anticipated tariffs, signaling that businesses are bracing for potential disruptions in global trade and rising costs.
In addition, job cuts soared to their highest level since 2020, with significant layoffs at companies like DOGE adding to fears of a slowing job market. However, there was a silver lining, as initial jobless claims came in below expectations, offering some reassurance to investors that the labor market, while challenged, may not be deteriorating as quickly as some had feared.
Surprising acceleration in growth
Earlier in the week, the ISM PMI data showed a surprising acceleration in growth within the services sector, suggesting that certain parts of the economy remain resilient despite broader uncertainties. In contrast, manufacturing activity continued to weaken, with data pointing to softening demand and rising costs. This divergence between the services and manufacturing sectors adds to the complexity of the economic outlook, leading investors to closely monitor any signs of a potential slowdown or recession.
With the US jobs report set to be released tomorrow, investor focus is now firmly shifting toward labor market conditions. This data will be key in gauging the resilience of the economy, especially as it pertains to wage growth and unemployment trends. Additionally, investors are eagerly awaiting an appearance by Fed Chair Jerome Powell, whose remarks could provide crucial insights into the Federal Reserve's stance on interest rates and monetary policy.
Auto tariffs delay helped sentiment
Meanwhile, the Trump administration's decision to delay auto tariffs on Mexico and Canada by one month for automakers whose vehicles comply with the US-Mexico-Canada Agreement (USMCA) helped temporarily ease concerns within the auto industry. However, the ongoing trade uncertainties, coupled with the broader macroeconomic challenges, have left investors cautious, awaiting clearer signals on both domestic and global economic stability.
