Pessimistic NFP Expectations, US Dollar Depleted
The very bad ADP Employment Change data a few days ago hinted that the release of Non-farm Payroll data later tonight may have missed expectations.
On forex - The US dollar index (DXY) is wallowing in a two-week low below the 95.50 threshold in Asian trading today (4/Feb). Several major central banks boosted their currency rates by conveying a more hawkish policy stance. On the other hand, the US dollar was under pressure due to more pessimistic market expectations for the release of US Non-farm Payroll data later tonight.
The European Central Bank (ECB) yesterday contributed the biggest surprise at the beginning of this year. After a full year 'insistent' did not want to mee the 'Rate Hike', ECB President Christine Lagarde finally admitted that a higher inflation rate could urge them to raise interest rates faster. EUR / USD also jumped more than 1 percent in a short time.
The pound sterling also contributed to DXY's slump. The announcement of the BoE rate hike yesterday was expected by market participants so that GBP/USD only strengthened to a limited extent, but the increasingly hawkish trend among non-US banks has put pressure on the greenback.
We've been telling clients that you need to be prepared for higher volatility in the forex market and in the market in general as major central banks enter new policy cycles, and that's what we've seen dramatically in the dollar over the last few weeks,' said Rodrigo Catrill, senior FX strategist at National Bank of Australia, 'Markets are starting to wonder not just about when (central banks) will start raising interest rates, but more importantly, how quickly and how much they will raise them. It's not just the Fed's story now, it's the Bank of England, the ECB and even the RBA.
Meanwhile, the market anticipates the possibility of missing the release of Non-farm Payroll (NFP) data later tonight. The provisional consensus estimate predicts that NFP will only register an increase of 150k in January 2022, which is less than the 199k increase in December 2021. However, the release of very bad ADP Employment Change data a few days ago hinted at the possibility of a more severe NFP decline than the estimate. .
The release of disappointing January 2022 NFP data probably won't disturb expectations of the Fed's rate hike in March, as the central bank is currently prioritizing the issue of rising inflation over the labor market situation. However, disappointing data could erode market confidence in the USD bullish outlook this year.
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