After Fed, dollar seeks additional reprieve from NFP report; higher wage growth eyed – Forex News Preview
February 1, 2018 11:26 am
Even as US data continues to point to an upside risk to growth this year, the dollar has had a terrible start to 2018, falling by around 3.5% against a basket of currencies. A convincing sign that labour shortages are finally starting to push up wages could be the catalyst investors need to price in the possibility of three or more rate hikes by the Fed in 2018. Friday’s nonfarms payrolls report (due at 13:30 GMT) might go some way in achieving this.
The US economy is expected to add 180k jobs in January, after a modest slowdown in December to 148k jobs. The average monthly pace of job creation was down in 2017 compared to 2016 and has been steadily slowing since 2015 as the labour market approaches full employment. However, with the unemployment rate at a 17-year low of 4.1%, investors are more likely to start worrying about the risk of an overheating economy, if the economy continues to generate more than 100k jobs a month, than to cheer the upbeat numbers.
So far though, there has been little indication of this as wages have remained subdued. Average hourly earnings did tick higher in December to 2.5% year-on-year and are expected to edge further up in January to 2.6%. A bigger-than-expected increase would boost the outlook for wage growth. But without a sustained rise towards 3% and above, the Fed is not seen to be adjusting its rate hike path, at least not without a rise in underlying inflation from other sources.
With the dollar now finding itself back below the key 110 level versus the yen, a strong jobs report on Friday may not be enough to lift the pair to a more comfortable range above the 110 handle. Investors have become so focused on what other central banks such as the European Central Bank and the Bank of Japan may do next, they may have taken their eyes off the ball as to what the Fed will do in 2018.
However, a positive report should nevertheless help the greenback move back towards recent resistance just below 109.80 yen. A successful break of this level could set the path towards the past congested areas around 110.15 and 110.75, before challenging the psychological 111 level. In the event of a disappointing set of numbers, a re-test of last week’s 4½-month low of 108.27 is possible. A breach below that level would open the way towards last September’s 10-month low of 107.31.
Even as US data continues to point to an upside risk to growth this year, the dollar has had a terrible start to 2018, falling by around 3.5% against a basket of currencies. A convincing sign that labour shortages are finally starting to push up wages could be the catalyst investors need to price in the possibility of three or more rate hikes by the Fed in 2018. Friday’s nonfarms payrolls report (due at 13:30 GMT) might go some way in achieving this.
The US economy is expected to add 180k jobs in January, after a modest slowdown in December to 148k jobs. The average monthly pace of job creation was down in 2017 compared to 2016 and has been steadily slowing since 2015 as the labour market approaches full employment. However, with the unemployment rate at a 17-year low of 4.1%, investors are more likely to start worrying about the risk of an overheating economy, if the economy continues to generate more than 100k jobs a month, than to cheer the upbeat numbers.
So far though, there has been little indication of this as wages have remained subdued. Average hourly earnings did tick higher in December to 2.5% year-on-year and are expected to edge further up in January to 2.6%. A bigger-than-expected increase would boost the outlook for wage growth. But without a sustained rise towards 3% and above, the Fed is not seen to be adjusting its rate hike path, at least not without a rise in underlying inflation from other sources.
With the dollar now finding itself back below the key 110 level versus the yen, a strong jobs report on Friday may not be enough to lift the pair to a more comfortable range above the 110 handle. Investors have become so focused on what other central banks such as the European Central Bank and the Bank of Japan may do next, they may have taken their eyes off the ball as to what the Fed will do in 2018.
However, a positive report should nevertheless help the greenback move back towards recent resistance just below 109.80 yen. A successful break of this level could set the path towards the past congested areas around 110.15 and 110.75, before challenging the psychological 111 level. In the event of a disappointing set of numbers, a re-test of last week’s 4½-month low of 108.27 is possible. A breach below that level would open the way towards last September’s 10-month low of 107.31.
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