USD in Focus with Nonfarm Payrolls, Wage Growth and FOMC Chatter

Some may have expected jubilation following Trump’s triumph over the Healthcare Bill, the desire to unwind Obama’s 2-term legacy now officially underway following a false start or two, but with the Bill now facing the Senate, even the administration is likely to be mindful of what lies ahead.

The administration managed to weigh on the Dollar, with the Dollar Spot Index giving up gains from the start of the European session to end the day at sub-99 levels on Thursday, the softness in the Dollar coming despite a 90% probability of a rate hike next month.

Economic data out of the U.S was mixed through the U.S session, which certainly didn’t help the Dollar’s cause, but with unit labour costs seeing a sizable jump through the 3^rd quarter there was some support, while productivity waned as expected, following the GDP figures. Unit labour costs gains are acceptable, but productivity will need to bounce in the coming months. It’s not looking too doom and gloom though, particularly when considering the rebound in service sector activity going into the 2^nd quarter, but time will tell whether the FED’s got it right this time around.

There are no introductions needed for today’s stats, with April’s nonfarm payroll and wage growth figures scheduled for release. While Wednesday’s ADP numbers were good enough to leave the FED in its current path towards monetary policy normalization, the FOMC statement having brushed aside the weakness in the U.S economy through the 1^st quarter, today’s figures will be more relevant and the market would certainly be less forgiving to any numbers short of expectation, particularly following last month’s 98k increase.

Based on forecasts, the Dollar should get a bounce, assuming that both wage growth and nonfarm payrolls hit the mark, but there’s a little more to consider through the U.S session, with a total of six FOMC members also scheduled to speak through the session.

Focus will undoubtedly be on FED Chair Yellen, with Vice Chair Fischer coming in a close second, with voting-member Evans also scheduled to speak, though it could be a case of safety in numbers, should non-voting members Williams, Bullard and Rosengren talk from the same hymn sheet.

Timing is everything and so soon after the release of the FOMC statement, which was particularly silent on the Committee’s plans vis-à-vis reducing the balance sheet, the markets will be looking for some direction ahead of the FOMC meeting minutes scheduled for release later in the month. Expectations will be high, but as has been the case the past, if the FED had any intentions to deliver the markets with details on a plan to reduce the balance sheet, some reference would have been made in the Wednesday statement.

So, both Yellen and Fischer are likely to remain silent, with Williams talking about housing finance, whilst members Bullard, Evans and Rosengren will be speaking at a monetary policy conference, which could yield some results. Evans’ views will have the most weighting as a voting-member, with the Chicago FED President having upped the ante through the 1^st quarter, suggesting that 4-rate hikes were possible should the U.S economy continue to perform. Well, we’ve had the slowdown, so while many will be looking for references to the balance sheet, the markets will also need to consider whether there will be any flip-flopping on rate path projections.

There are no material stats out of Eurozone or the UK to distract the markets going into the U.S session, though the markets will more than likely jostle for position ahead of the run-off vote in France on Sunday, with Macron now seemingly in a one horse race, the presidential debate on Wednesday certainly not going Le Pen’s way despite attempts to bring down the centralist with talks of offshore bank accounts…

The upbeat sentiment towards the Sunday election will provide some support for the EUR, which may well return to $1.10 levels by Monday assuming Macron takes the presidency, if not before, such levels not hit since November of last year, with the Dollar having been on the back foot through the Asian session, all eyes on today’s stats with ears pinned to the ground, rate hikes alone no longer good enough for the Dollar, not with Team Trump lurking in the wings.

At the time of the report, the EUR/USD stands at $1.09667, down 0.17%, with the EUR giving up gains from the Asian session, with the Dollar Spot Index up just 0.04% at 98.838.