# Wage data dents dollar recovery before Fed rate decision
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2023-02-01
Category: NEWS
Category URL: https://financedigest.com/category/news
Meta Title: Dollar falls as U.S. labor costs rise less than expected
Meta Description: Get the latest on the dollar's performance after U.S. labor costs increase less than predicted. Stay informed before the Federal Reserve's expected
URL: https://financedigest.com/wage-data-dents-dollar-recovery-before-fed-rate-decisionhtml

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By Karen Brettell

NEW YORK (Reuters) – The dollar fell on Tuesday, giving up earlier gains, after data showed U.S. labor costs increased less than expected in the [fourth quarter](https://www.financedigest.com/german-gdp-contracted-by-0-4-in-the-fourth-quarter.html "German GDP contracted by 0.4% in the fourth quarter"), and before the Federal Reserve is expected to hike rates by 25 basis points on Wednesday.

The Employment Cost Index, the broadest measure of labor costs, rose 1.0% last quarter. That was the smallest advance [since the fourth quarter](https://www.financedigest.com/first-quarter-dash-for-cash-largest-since-early-2020-bofa.html "First quarter ‘dash for cash’ largest since early 2020 -BofA") of 2021 and followed a 1.2% gain in the July-September period.

Still, it is not seen as likely to sway the U.S. central [bank from some further rate hikes](https://www.financedigest.com/ecbs-villeroy-rate-hike-signals-strong-confidence-in-european-banks.html "ECB’s Villeroy: rate hike signals strong confidence in European banks").

“Despite the fact that it came in below expectations, objectively speaking it’s still a pretty firm print that means that the [Fed](https://www.financedigest.com/stocks-sag-as-hawkish-fed-cools-china-rally-awaits-us-jobs-data.html "Stocks sag as hawkish Fed cools China rally; awaits US jobs data") is still going to sound hawkish,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.

Other data on Tuesday also showed that [house price](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") growth slowed considerably in November, with a 9.2% increase in the month.

Fed funds futures [traders are pricing for the Fed’s benchmark rate](https://www.financedigest.com/dollar-hits-one-month-high-against-yen-as-traders-bet-on-fed-rate-hike.html "Dollar hits one-month high against yen as traders bet on Fed rate hike") to peak at 4.91% in June, up from 4.33% now.

But [investors are also](https://www.financedigest.com/old-trafford-attracting-not-just-footballers-from-around-the-world-but-also-investors.html "Old Trafford attracting not just footballers from around the world, but also investors") bearish on the U.S. economy and [see the Fed as having to cut](https://www.financedigest.com/inpost-sees-better-margin-in-poland-plans-no-job-cuts-this-year.html "InPost sees better margin in Poland, plans no job cuts this year") rates back to 4.48% by December. This is despite [Fed officials stressing they will need to keep rates](https://www.financedigest.com/dollar-falls-after-fed-raises-rates-forecasts-future-hike.html "Dollar falls after Fed raises rates, forecasts future hike") in restrictive territory for a period of time in order to bring down inflation.

“(Fed Chair Jerome) [Powell and the FOMC will want to flag the fact that we are going to see higher rates](https://www.financedigest.com/dollar-jumps-as-powell-flags-higher-terminal-rate.html "Dollar jumps as Powell flags higher terminal rate") for a little bit longer. It’s all about whether or not the [market](https://www.financedigest.com/leading-point-financial-markets-acquires-lmmc-to-strengthen-its-insurance-services-offering.html "Leading Point Financial Markets Acquires LMMC to Strengthen its Insurance Services Offering") believes that narrative at this point,” said Rai.

The [dollar index was last down 0.21% on the day against a basket of currencies](https://www.financedigest.com/u-s-dollar-advances-vs-major-currencies-as-risk-appetite-fades.html "U.S. dollar advances vs major currencies as risk appetite fades") at 102.03. It earlier rose to a two-week high of 102.61, which analysts said was likely due in part to repositioning for month-end.

The greenback is also [trading just above key technical supports against major currencies including](https://www.financedigest.com/ing-toughens-oil-and-gas-policy-to-include-trade-finance-midstream.html "ING toughens oil and gas policy to include trade finance, midstream") the euro.

The index is on track to post a monthly [loss of 1.39% for January, after losing 2.26% in December and 5.07% in November, which was its worst monthly loss since](https://www.financedigest.com/dollar-retreats-headed-for-biggest-weekly-loss-since-mid-january-bitcoin-down.html "Dollar retreats, headed for biggest weekly loss since mid-January; bitcoin down") September 2010. The losses in November came on expectations that the [Fed would begin slowing rate hikes](https://www.financedigest.com/wall-street-slips-dollar-gains-as-fed-seen-hiking-rates-in-may.html "Wall Street slips, dollar gains as Fed seen hiking rates in May"), which it did in December.

The index has weakened from a 20-year high of 114.78 on Sept. 28.

The [euro gained](https://www.financedigest.com/dollar-trims-gains-vs-euro-after-u-s-inflation-data.html "Dollar trims gains vs euro after U.S. inflation data") 0.21% on the day to $1.0867, after earlier falling to $1.0802.

Data on Tuesday showed the euro zone eked out growth in the final three months of 2022, managing to avoid a recession even as sky-high energy costs, waning confidence and [rising interest rates](https://www.financedigest.com/uk-inflation-rate-unexpectedly-rises-to-10-4-in-february.html "UK inflation rate unexpectedly rises to 10.4% in February") took a toll on the economy that is likely to persist into this year.

The [European Central Bank](https://www.financedigest.com/dollar-outshines-euro-sterling-amid-european-bank-jitters.html "Dollar outshines euro, sterling amid European bank jitters") and Bank of England are both expected to hike rates by 50 basis points on Thursday.

[Sterling fell 0.16% against the dollar](https://www.financedigest.com/sterling-steadies-vs-dollar-ahead-of-boe-ecb-meetings.html "Sterling steadies vs dollar ahead of BoE, ECB meetings") to $1.2329.

The [dollar fell 0.24% against the Japanese yen](https://www.financedigest.com/yen-sinks-as-rates-outlook-diverges-nz-dollar-tumbles.html "Yen sinks as rates outlook diverges; NZ dollar tumbles") to 130.12.

(Additional [reporting by Harry](https://www.financedigest.com/britains-prince-harry-arrives-at-balmoral-itv-reporter.html "Britain’s Prince Harry arrives at Balmoral – ITV reporter") Robertson in London; Editing by Mark Potter and Mark Heinrich)


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