Despite the holiday-shortened week ahead for US and UK financial market, the US March nonfarm payrolls (NFP) report is set to grab hold of traders and investors’ attentions.
The NFP is due at the end of a week that also features these economic data releases and events:
Monday, April 3
Tuesday, April 4
Wednesday, April 5
Thursday, April 6
Friday, April 7
The US jobs report offers a major clue for how much higher the Federal Reserve can raise interest rates.
And various assets, including FX, commodities, and stocks, have been rocked by shifting forecasts surrounding the future rate adjustments by the world’s most influential central bank (the Fed).
While it’s odd to think that a central bank of the world’s largest economy would want to see more people losing their jobs (or at least fewer people getting jobs), but that’s the prescribed antidote by the Fed for subduing inflation that’s still too high.
Fewer people with jobs = less spending in the economy = businesses are less confident about hiking their prices aggressively = slower inflation
With the Fed already hiking US rates by 450 basis points over the past 12 months, here’s what markets are forecasting for the Fed’s next major adjustments to its benchmark interest rates:
Those rate cuts by year-end are being priced in by the markets because they think the Fed won’t want to incur too much damage to the US economy and/or the financial system, especially after the recent turmoil in the US banking sector.
It’s important to note that the above forecasts set the base for how various assets may react (more on that later) to the official figures released a week from today.
The US dollar tends to rise at the prospects of US interest rates moving even higher.
Note that gold is a zero-yielding asset, which means it does not pay interest to the investor for holding on to that asset.
Hence, the precious metal tends to fall at the thought of US interest rates moving higher, and vice versa.
The Nasdaq 100 is an index that’s filled with US tech stocks, which generally do not like the thought of US interest rates moving higher.
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Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets.