The U.S. dollar drifted lower against its major counterparts on Friday after data showing a drop in wage growth and a contraction in U.S. service sector activity raised hopes the Federal Reserve will continue to slow their aggressive pace on interest rate hikes.
The report from the Institute for Supply Management showed U.S. service sector activity unexpectedly contracted in the month of December. The ISM said its services PMI tumbled to 49.6 in December from 56.5 in November, with a reading below 50 indicating a contraction. Economists had expected the index to edge down to 55.0.
With the much bigger than expected decrease, the index indicated a contraction for the first time since May 2020, when it hit 45.2.
Data from the Labor Department showed employment in the U.S. increased by slightly more than expected in the month of December.
The report said non-farm payroll employment jumped by 223,000 jobs in December after surging by a revised 256,000 jobs in November.
Economists had expected employment to shoot up by 200,000 jobs compared to the addition of 263,000 jobs originally reported for the previous month.
The Labor Department also said the unemployment rate edged down to 3.5% in December from a revised 3.6% in November. The unemployment rate was expected to come in unchanged compared to the 3.7% originally reported for the previous month.
Annual wage growth slowed to 4.6% in December from 4.8% in November. Easing wage growth reduced worries over the Fed’s rate-hike trajectory.
The dollar index dropped to 103.87, losing more than 1.1%.
Against the Euro, the dollar weakened to 1.0645, losing nearly 1.2%.
The dollar dropped to 1.2093 against Pound Sterling, giving up more than 1.5%, and against the Japanese currency, it eased to 132.09, down nearly 1% from the previous close.