Market Overview
The US dollar (DXY) has started the year on a solid note, finding support near the 98.00 mark. In contrast, the EURUSD continued to decline despite positive economic signs from Germany. Specifically, German factory orders saw a month-on-month increase of 5.6% in November, marking the third month of growth and the fastest increase in a year.
On the US economic front, non-farm productivity jumped by 4.9% (seasonally adjusted) in the third quarter, up from 3.3% in the prior quarter. This is the fastest growth rate since the third quarter of 2023. However, new jobless claims for the week ending January 3 rose to 208,000, up from 199,000, although they remain historically low. Additionally, the New York Fed’s one-year inflation expectations edged up from 3.2% to 3.4% in December, suggesting a cautious approach from the Fed regarding monetary policy.
Attention now turns to the nonfarm payrolls report due later today, which has the potential to alter market views on how quickly the Fed may cut rates. The market consensus anticipates approximately 70,000 new jobs in December, but recent data hints at possible upside risks. Private payrolls have bounced back from negative readings in November, while the ISM Services Employment Index improved from 48.9 to 52.0, indicating a return to growth.
Regional FX Update
Across Asia, currencies generally weakened against the US dollar yesterday, with the Thai baht leading the declines, dropping 0.8%. This is largely attributed to the Bank of Thailand’s ongoing efforts to moderate currency appreciation. Notably, Thai consumer confidence fell in December for the first time in four months, reflecting a dip in domestic sentiment as consumers appear hesitant ahead of the upcoming general election set for February 8th.
Meanwhile, the Indonesian rupiah is under pressure due to a growing fiscal deficit, rising inflation, and the possibility of an interest rate cut by Bank Indonesia. The fiscal deficit in Indonesia is projected to widen to 2.9% of GDP by 2025, surpassing the government’s estimate of 2.78% and larger than the 2.3% deficit observed in 2024. Government revenue has decreased by 3.3% from the previous year to 2,756.3 trillion rupiah, while expenditures have increased by 2.7% to 3,451.4 trillion rupiah, leading to a budget shortfall of 695.1 trillion rupiah. Finance Minister Purbaya has emphasized that the fiscal deficit remains below the legal cap of 3%, and sovereign credit default spreads are relatively stable. On a positive note, foreign exchange reserves rose by $6.4 billion, now totaling $156.5 billion, providing some buffer against external pressures.
