The US dollar index settled around 105 on Friday as traders closely watching out for the February’s jobs report to be released later on the day. A higher reading could possibly drive up the USD even further and affirms speculation of a more aggressive rate hikes in the coming months.
US Dollar Losses Steam
The USD was down slightly reversing some gains from earlier this week, however, it stayed close to its 4-month high against major currencies.
On Thursday, the US dollar declined due to recently released jobless claims data that may indicate a softening labor market and reduced uncertainty surrounding the Federal Reserve’s potential for additional aggressive monetary tightening.
For the week, the dollar index is up by 0.76%.
The US dollar index climbed to fresh new highs this week on the presumption of more rapid tightening by the Federal Reserve. The greenback is set to end the week higher following the hawkish comments delivered earlier by Federal Reserve Chair Jerome Powell and a series of better-than-anticipated economic data. Read USD Soars on Powell’s Remarks
This week, Powell stated that the ultimate level of interest rates could be higher than previously estimated given stronger economic data and declared that the bank is willing to accelerate the pace of interest rates hike if necessary.
Federal Reserve Chair Jerome Powell repeated on Wednesday the message he gave to Congress a day prior of potentially more frequent and quicker interest rate hikes. However, he emphasized that this conclusion was still up for discussion as it depended upon data issued before March’s gathering.
Even though there is an 80% chance that a 50bps rate hike this month, we could see a dollar pullback unless Friday’s Non-Farm Payroll report provides better-than-expected performance.
Non-Farm Employment is a critical data for the Federal Reserve that gauges the strength of labor market and helps assessing the overall economic activity, therefore setting monetary policy.
Market participants expect the US economy to add 224K jobs in February, lower than 517K jobs printed in January which spurred confidence in the US economy.
Before anticipating data, here are some figures to consider:
- The ISM Manufacturing PMI’s Employment component dropped to 49.1, significantly below last month’s 50.6 reading and has now re-entered contractionary territory.
- The Employment component of the ISM Services PMI grew from 50.0 last month to 54.0 in February.
- US private sector added 242,000 jobs in February, well above expectations at 197K and January’s revised reading of 119K.
- Seasonally adjusted initial jobless claims rose to 211,000 in the week ending March 4, a 21,000 surge from 190,000 in the preceding week.
- The 4-week moving average of jobless claims rose by a total of 4,000 from 193,000 to 197,000, steady near multi-decade lows.
Data suggest that a higher-than-expected reading is highly anticipated. However, traders will also keep their eyes on wage growth and unemployment rate. Monthly average hourly earnings is expected to stabilize at 0.3% while growing 4.7% annually, from 4.4% in January. Meanwhile, US unemployment is expected to remain at multi-decade low of 3.4%.
If the employment data meet forecasts, it won’t be enough to ease concerns regarding high inflation and could even heighten the possibility of a 0.5 percentage point rate hike by the Federal Reserve at their upcoming policy meeting in less than two weeks. Investors are also watch any potential revisions to January’s unexpected reading as well.
Jerome Powell’s recent remarks to Congress this week suggested that inflation may be more difficult than expected to control, and the Federal Reserve would likely need to raise interest rates higher than projected. This adjustment in outlook came as a result of unswerving resilience on the job market front combined with data which illustrated an unexpectedly high level of January inflation figures.
Whether Nonfarm Payrolls (NFP) will have an effect on Gold depends heavily on the labor data’s ability to influence current interest rates and inflation expectations.