The week in review
- Job openings declined to 8.79M in Nov.
- Nonfarm payrolls increased 216K
- Wages grew 4.1% y/y and 0.4% m/m
The week ahead
Thought of the Week
After moving sideways during the first half of 2023, the dollar continued its decline to end 2% down in 2023 (now -11% from its October 2022 peak). In fact, it depreciated against almost every major DM currency except the Japanese yen. After over 10 years of dollar strength, could this be the start of a new cycle? History suggests the dollar tends to move in multi-year cycles, with long periods of weakness following extended periods of strength. Dollar movements are driven by interest rate and growth differentials and sentiment in the short term, but by current account balances over the long term.
There are many factors that could put downward pressure on the dollar in 2024 and beyond. The Fed is likely to cut first out of the DM central banks, whereas others are expected to stay on pause for longer or even raise rates. In addition, with the end of negative interest rates in Europe and most likely Japan, interest rate differentials between the U.S. and other DMs will likely not be as wide as they were in the post-GFC period. Regarding growth, consumer spending, the bedrock of the U.S. economy, is set to slow after hitting what was likely a high-water mark in 3Q. Over the long term, the increasing current account deficit and federal debt also suggest further USD depreciation. At the same time, elevated geopolitical risks and any upward surprises in inflation could interrupt its path downward.
For investors, a weaker dollar increases the opportunity for international equities and internationally exposed U.S. companies to perform well. Even after a year of strong U.S. outperformance, investors should avoid recency bias by ensuring their equity portfolios are properly diversified across different regions.
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Originally Posted January 8, 2024 – Weekly Market Recap
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Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described may not be suitable for all investors.
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