The US dollar ticked higher on Thursday, recovering some ground after a recent slide, as oil prices rebounded and investors largely stuck with their bets on another Federal Reserve rate hike. The move came even as fresh data pointed to a still-hot US labor market.
What moved the dollar
The dollar index, which measures the greenback against a basket of major currencies, rose to 101.51. That followed a period of weakness, as traders had been trimming expectations for further Fed tightening. But Thursday's data gave the currency a fresh tailwind.
Initial jobless claims fell to 189,000, matching a level not seen in 57 years. That suggests layoffs remain very low and the labor market is still tight, which could keep upward pressure on wages and prices. In addition, productivity data came in better than expected, helping to ease some worries that rapid wage growth would feed into persistently high inflation.
Together, the numbers reinforced the view that the US economy is still running warm. For the Fed, that means there is less urgency to pause its rate-hiking campaign. Markets responded by keeping the probability of a December rate hike at around 74.5%, according to fed funds futures.
Oil rebounds after a sharp drop
Crude oil prices also played a role in Thursday's currency moves. Oil climbed about 2%, recovering some ground after an 8% slump in the previous session. The rebound helped lift commodity-linked currencies and gave the dollar a modest boost as risk sentiment steadied.
The earlier drop in oil had been driven by concerns about global demand and oversupply. But the bounce suggests traders are still weighing those worries against supply constraints and geopolitical risks. For the dollar, higher oil prices can be a double-edged sword: they tend to support inflation and rate expectations, but they can also weigh on growth.
Investors are also keeping an eye on central bank speakers and upcoming data. The dollar's recent moves have been closely tied to shifting rate expectations, and any surprises from policymakers could quickly change the picture.
What it means for investors
For everyday investors, the key takeaway is that the Fed's path remains the dominant force in markets. If the central bank does raise rates again in December, that would mark another step in its fight against inflation, but it also means borrowing costs stay higher for longer. That affects everything from mortgage rates to credit card interest and even the returns on savings accounts.
A stronger dollar can also have ripple effects. It makes US exports more expensive for foreign buyers, which can weigh on multinational companies' earnings. At the same time, it can make imported goods cheaper for American consumers, which might help ease inflation pressures.
For those with investments in international stocks or emerging markets, a firmer dollar can be a headwind, as it reduces the value of foreign earnings when converted back to dollars. The recent moves in Latin American markets show how central bank decisions and currency swings are affecting different regions.
Oil's rebound is also worth watching. Energy prices are a major driver of inflation, and a sustained recovery in crude could complicate the Fed's task. On the other hand, if oil stays volatile, it could add to uncertainty for both consumers and businesses.
Looking ahead
Traders will now focus on upcoming economic data and speeches from Fed officials for clues about the December meeting. The jobs report, due next week, will be particularly important. If it shows continued strength, it could solidify the case for another hike. If it disappoints, rate expectations could shift quickly.
The dollar's direction in the coming weeks will likely hinge on how these factors play out. For now, the market seems to be betting that the Fed is not done yet, and that is keeping the greenback supported.
