A Fed official revealed that there is still a chance for further interest rate hikes despite weakening economic conditions.

The US Dollar Index (DXY) is still hovering near a two-month low below the threshold of 102.00 in Wednesday's (4/5/2023) trading. Some disappointing recent economic data weigh down the greenback. However, a Fed official revealed that there is still a chance for further interest rate hikes despite weakening economic conditions.

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Yesterday's Job Openings and Labor Turnover Survey (JOLTS) recruitment report showed that the number of job vacancies in the US in February 2023 has dropped to the lowest level in almost two years. This is a dovish factor for the prospects of The Fed's interest rate and a bad sign for Friday's upcoming Nonfarm Payroll data release.

"Yesterday's JOLTS data can be the first signal of weakness in the US labor market, and that's big news," said Craig Erlam, a strategy expert at OANDA. "Without (weak labor data) it, The Fed would have difficulty finding arguments to stop the monetary tightening cycle. Now, this data needs to be supported (by other labor data), and the employment report on Friday could start the process (of stopping the monetary tightening cycle)."

The labor market data released tonight in the US is also bleak. ADP reported that the number of non-farm workers only increased by 145k in March 2023, while the market expected an increase of 200k.

ISM announced the results of its non-manufacturing activity survey, which slowed down in March 2023, although it was still in the expansive territory. The US Non-Manufacturing PMI score weakened from 55.1 to 51.2 or missed the consensus estimate set at 54.5.

Like the US Manufacturing PMI report released earlier, all components of this Non-Manufacturing PMI also fell below expectations. The price sub-index plummeted from 65.6 to 59.5, indicating a strong disinflation process in the US service industry. The employment and new order sub-indexes also declined.

The bleak data pushed market players to raise the chances from around 45% to almost 60% for the scenario where The Fed would not change interest rates in the next meeting. Nevertheless, the recent statement from The Fed officials suggests one more rate hike of 25 basis points.

The President of The Fed Cleveland, Loretta Mester, acknowledged that the US economy seems to be slowing down. However, she believes the central bank still has room to raise interest rates. She argued that The Fed's interest rates need to reach a level above 5.0% to curb inflation sustainably.

Mester's statement contributed to temporarily slowing down the decline of the US dollar. Major currency pairs reflected moderate resistance efforts from USD buyers. EUR/USD retreated about 0.4% as of this writing, failing to reach the threshold of 1.1000. GBP/USD also corrected by 0.4% and was rejected from the threshold of 1.2500.