The employment cost index, the broadest measure of labor costs, rose 1.0% in the last quarter after increasing 1.2% in the July-September period, a the Labor Department announced Tuesday.
Still, this is not seen as likely to prevent the US central bank from raising rates further.
“Despite falling short of expectations, objectively speaking it’s still a pretty strong impression that means the Fed is still going to look hawkish,” said Bipan Rai, North American head of FX strategy at CIBC. Capital Markets in Toronto.
Fed funds futures traders expect the Fed’s benchmark rate to peak at 4.93% in June, up from 4.33% currently.
But investors are also bearish on the US economy and believe the Fed will need to cut rates to 4.48% by December. This is despite Fed officials stressing that they will need to keep rates in restrictive territory for some time in order to bring inflation down.
“(Fed Chairman Jerome) Powell and the FOMC will want to flag the fact that we’re going to see higher rates for a bit longer, it’s a question of whether or not the market believes that narrative at this point” , said Rai. The dollar index was last little changed on the day against a basket of currencies at 102.24. Earlier, it hit a two-week high at 102.61, which analysts said was likely due in part to repositioning for the end of the month. The greenback is also trading just above major technical supports against major currencies, including the euro.
The index weakened from a 20-year high of 114.78 on September 28 as investors priced in the likelihood that the US central bank was nearing the end of its tightening cycle.
The euro was also little changed on the day at $1.0847, having earlier fallen to $1.0800.
Tuesday’s data showed the eurozone recorded growth in the last three months of 2022, managing to avoid a recession even as spiraling energy costs, falling confidence and rising interest rates have weighed on the economy which should persist in this period. year.
The European Central Bank and the Bank of England are both expected to raise rates by 50 basis points on Thursday.
The pound fell 0.26% against the dollar to $1.2317.
The dollar was down 0.45% against the Japanese yen at 129.85.
(Additional reporting by Harry Robertson in London; Editing by Mark Potter)
