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Nonfarm Payrolls – Will the Dollar Bounce?

By:
Bob Mason
Updated: Mar 10, 2017, 09:14 UTC

Its nonfarm payrolls and the markets have been waiting for today’s stats for a week now, FOMC voting members having laid the groundwork for a rate hike by

NonFarm Payrolls

Its nonfarm payrolls and the markets have been waiting for today’s stats for a week now, FOMC voting members having laid the groundwork for a rate hike by the FED at next week’s FOMC meeting.

The probability of a March hike currently sits at 86%, a slight uptick coming off the back of Wednesday’s release of the ADP figures, which were not only good, but perhaps described as exceptional.

We may be a little too optimistic to expect similar figures this afternoon, though it would seem reasonable to look for 200k plus figures for February. Such numbers will add further pressure on the FED to make a move, the labour market already considered at full employment by the more hawkish members of the FOMC.

Expectations of solid figures this evening have provided support for the Dollar through the Asian session, in contrast to normal where the Dollar has struggled in recent weeks. The Dollar Spot Index held positive territory since the start of the day, while touching the red at the start of the European session and we can expect appetite for the Dollar to be mixed ahead of the release of this evening’s data, sub-200k figures likely to be a shock for the markets rather than acceptable, the relevance of the data adding to Dollar volatility through the European session.

It’s not just down to the nonfarm payroll figures for February however, with the markets also needing to ensure that there is no material downward revision to January’s numbers and a reasonable uptick in wage growth. We have, on occasion seen some material revisions to previous month figures, which would add some confusion, though how much influence such a revision will have ultimately depends on the February numbers. On wage growth, the figures will need to reflect evidence of continued inflationary pressures and further tightening in the labour market.

What will be good enough for the FED will be the question floating around the markets ahead of the release this afternoon? Anything in line with forecasts would certainly be good enough, though anything beyond forecasts likely to be considered the final piece of the puzzle.

There’s plenty of economic data out of the U.S next week, ahead of the FOMC’s interest rate decision, including February inflation and retail sales figures, which are scheduled for release on Wednesday. A mediocre data set this evening, coupled with weak figures next week, will need to be a consideration, despite the market view that the FED needs to make its move to retain credibility. China’s latest inflation figures have been a warning to the markets and, while we don’t expect similar decline in the U.S, the recent slide in oil prices could be a factor for the FED to consider.

For the day, the obsession over today’s figures is sufficient to leave the Dollar in the hands of nonfarm payrolls and wage growth, the Dollar Spot Index likely to make a run at 103 levels, though to break through, the government numbers will need to be as good as the ADP figures released on Wednesday.

Across the pond, economic data out of the UK will also be watched closely, with industrial and manufacturing production and trade data scheduled for release. It’s not only the FOMC meeting next week, with the BoJ, the BoE and the SNB also due to make monetary policy decisions through the week. Any weakness in today’s manufacturing figures out of the UK will just add further pressure on the pound, cable having struggled through the week, sitting at sub-$1.22 levels for the 3rd consecutive day.

At the time of the report, the Dollar Spot Index is down 0.07% at 101.78, while the EUR/USD and Cable are up 0.35% and 0.02% respectively, the EUR bouncing back from the red at the European open, finding support from a widening in Germany’s trade surplus, year-on-year, despite the ECB’s apparent unwillingness to shift on monetary policy. The gains in the pound will likely be tested should today’s stats follow the recent trend.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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