Initial jobless claims in the US show a trend that shook the Fed's interest rate speculation and US dollar exchange rate.

The latest data on US jobless claims indicates a significant upward trend. As a result, speculation about the Federal Reserve's interest rates has become increasingly uncertain, leading to a decline of approximately 0.7% in the US dollar index (DXY) to around 103.30 during the New York trading session on June 8.

USD Index

The US Department of Labor has revised the weekly jobless claims data for May 23, 2023, from 232,000 to 233,000. Furthermore, jobless claims increased to 261,000 for the week ending June 3.

This report has heightened uncertainty regarding the prospects of further interest rate hikes by the Federal Reserve throughout the remainder of this year, consequently negatively impacting the US dollar exchange rate.

However, several analysts believe that the downward pressure on the US dollar in the short term remains limited within a consolidation range. Speculation will continue fluctuating in response to new data releases from domestic and international sources.

"Claims (were) a bit higher than expected," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, but "we're still in a consolidation mode, right now we're just trapped."

"There is a small window of opportunity for the Fed to raise rates again, whether it's June or July, and the market now favors July, the market doesn't think there's anything more to be done because the economy looks set to weaken," said chandler.

"The USD is lower both on a trade-weighted and bilateral basis today. Indeed, it does feel like the market is looking at the greenback in the context of a Fed pause next week, and how that stacks up against other central bank surprises over the past week," says Bipan Rai, Head of North America FX Strategy at CIBC Capital Markets. 

As it is known, the central banks of Australia and Canada recently raised interest rates beyond consensus expectations. The Australian and Canadian dollars have thus far maintained the strength they gained following these events.

Market participants anticipate that the European Central Bank (ECB) will increase interest rates by 25 basis points in its policy meeting next week, causing the EUR/USD to soar by more than 0.7% to around 1.0780. The US dollar faces further vulnerability if the upcoming Federal Open Market Committee (FOMC) meeting produces a more dovish policy direction than other major central banks.