Will today’s nonfarm payrolls report shift the US Dollar?

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7 September 2018

thomasdodds

The major currency pairs were mostly range bound on Thursday as investors turned their attention to, as always, the crucial US nonfarm payrolls report this afternoon.

C
urrency traders are eying another solid report, with a lower unemployment rate and an uptick in job creation to around the 190k mark pencilled in. Yesterday’s ADP employment change number, which represents net jobs added in the private sector of the US economy, didn’t bode particularly well for today’s more meaningful nonfarm number. The private sector added 163,000 jobs in August after economists eyed a number closed to the 190k mark.

As continues to be the case of late, the market will, however, likely react more to the latest earnings data for any signs that multi-year low unemployment is beginning to feed its way through to higher wages. That being said, we think that even a disastrous report would be insufficient to derail another Federal Reserve interest rate hike at this month’s FOMC meeting, although could put the brakes on a December hike should it prove sufficiently underwhelming.

Aside from today’s labour report, we’ll have a number of speeches from Federal Reserve members Kaplan, Mester and Rosengren, which could potentially shift the greenback should they touch on monetary policy.

FX traders await Bank of England, ECB policy announcements

With no major news on the Brexit front out of the UK or EU on Thursday, the Pound ended London trading effectively unchanged against the US Dollar. The UK currency continues to be driven almost entirely by Brexit developments of late, with macroeconomic data largely taking a back seat. This could change next week, however, with Monday’s GDP and Tuesday labour data to be released a matter of days before the Bank of England announces its latest monetary policy decision on Thursday. While policy will almost certainly remain unchanged, the BoE is likely to shed light on its view over a possible ‘no deal’ Brexit and its potential impact on the UK economy.

Yesterday was also relatively quiet in the Eurozone, with no major data releases meaning that the Euro mostly treaded water ahead of today’s US nonfarm payrolls report. This morning’s German industrial production numbers were soft, showing a relatively sharp 1.1% contraction month-on-month, although this failed to derail the common currency. Other than that, this morning’s updated second quarter GDP release will be the only other announcement of note in the Euro-area. We instead turn our attention to next week’s ECB meeting, also on Thursday.