Heading into a busy day the dollar was on the back-foot thanks growing optimism over US – Sino trade talks and as investors question the Fed’s plans for the year ahead.
Weak manufacturing data on Wednesday combined with increased concerns over the health of the global economy, means investors are not only doubting whether the Federal Reserve can hike rates this year, but have also priced in a rate cut for 2020.
The first key event for the dollar today is the US non-farm payroll. 177,000 new jobs are expected to have been created in December. This would bring the total to 2.45 million jobs created across the year; the largest increase since 2015.
November’s jobs report disappointed with just 155,000 jobs created. However, there are signs that we could expect a stronger number for December. ADP employment figures were exceptionally strong this week, the best job creation since February 2017 and the fourth largest job creation since 2009. Historically there is a strong link between the ADP report and the US Labour Departments’ job report. So we could see a surprise to the upside.
The NFP report is expected to show the unemployment rate will hold steady at an 18 year low of 3.8%. Average hourly earnings, which tend to receive the bulk of focus given its inflationary impact, is expected to print slightly weaker at 3%, down from 3.1%. Although this is a tick lower, it is still hovering at around the highest level since the financial crisis.
Even in the case of a surprise to the upside in the NFP the reaction could be limited as investors wait to see what Powell has to say. Federal Reserve Chairman Jeremy Powell could give further clarification to the markets on monetary policy when he makes a scheduled appearance on Friday. Powell, along with previous Fed Chairs Yellen and Bernanke will appear in a panel discussion at 10:15 E.T. The broad expectation is that Powell will continue advising of the Fed’s uncertainty. Whilst we don’t expect Powell to show a big shift in outlook the markets will be looking for signs of flexibility from the head honcho.EUR/USD is trading cautiously higher, pushing through 1.14 in a dollar weakness story rather than on any noticeable euro strength. Should Powell hint towards a more flexibly dovish approach then the pair could power higher through 50 SMA at 1.1440 to target 1.15 November’s peak. On the downside support can be seen at 1.1380 before 1.1310.