The US Dollar has been under pressure from a spike in initial jobless claims, which reached 236,000. This is the largest weekly increase since March 2020. The labour market remains weak, with job creation slowing and layoffs increasing.<\/p>\n
The market is focused on upcoming reports – November’s Non-Farm Payroll (NFP) and Consumer Price Index (CPI). These are set to be released next week, on 16 and 18 December. A weaker data set could encourage a further decline in the USD.<\/p>\n
The US Dollar may experience a declining trend in December, as this month historically sees a decrease in value. Since 2000, December has been the weakest month, with an average decline of 1.07%. The USD index (DXY) dropped in 17 out of the past 25 Decembers.<\/p>\n
The US Dollar continues to be pressured as we see signs of a softening labor market. Initial jobless claims this past week jumped to 242k, adding to concerns that started after the November jobs report on December 5th showed hiring slowed to just 155,000. This slide in the dollar has been matched by a similar drop in U.S. Treasury yields.<\/p>\n
This trend of weakening job creation and rising layoffs has us watching the upcoming November inflation report very closely, which is set to be released next Tuesday, December 16th. A softer inflation number would likely reinforce the view that the Federal Reserve may have to consider easing policy sooner rather than later. This makes positioning for further dollar weakness an increasingly compelling strategy.<\/p>\n
For derivative traders, this environment suggests that buying put options on the Dollar Index (DXY) could be a clear way to act on this view, preparing for a potential drop. Seasonality is also on our side, as we have seen the dollar fall in 18 out of the last 26 Decembers, historically making it the weakest month of the year. Selling out-of-the-money call options on the dollar could also be considered to generate income from the expectation that any rallies will be limited.<\/p>\n
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