- The US Dollar goes nowhere and trades flat against most major peers.
- Inflation concerns are being put aside while traders focus on the upcoming Employment Report.
- The US Dollar Index (DXY) steadies around 109.00 and is set for some volatility later this Friday.
The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is trading flat ahead of the US employment report due later. Markets are leaving aside for a few hours inflation woes, which were the main theme throughout this week. Those concerns are moving now to the background while Asian equities are set to close off this week with a five-day losing streak.
The US economic calendar is quite interesting on Friday, with the December Nonfarm Payrolls (NFP) release and the January University of Michigan preliminary reading. Expectations for the NFP reading range from 100,000 e to 268,000. Expect any print below 100,000 to trigger substantial US Dollar (USD) weakness, while a print near or above 268,000 will trigger more US Dollar strength.
Daily digest market movers: Here comes NFP
- At 13:30 GMT, the US employment report for December will be released with the following main key elements:
- Nonfarm Payrolls headline data is expected to show 160,000 new workers against the 227,000 in November.
- The Unemployment Rate is expected to remain stable at 4.2%.
- The monthly Average Hourly Earnings are expected to ease a touch to 0.3% in December from the previous 0.4%.
- At 15:00 GMT, the University of Michigan releases its January preliminary reading:
- The Consumer Sentiment Index is expected to remain elevated at 73.8, just a bit lower from the previous 74.0.
- The 5-year Consumer Inflation Expectation print has no forecast and was at 3% in the final December reading.
- Equities look sluggish this Friday, with the Asian ones set to end the week with a negative daily close for China or Japan.
- The CME FedWatch Tool is projecting a 93.1% chance that interest rates will be kept unchanged at current levels in the January meeting. Expectations are for the Federal Reserve (Fed) to remain data-dependent with uncertainties that could influence the inflation path once President-elect Donald Trump takes office on January 20.
- US yields are softening a touch with the 10-year benchmark at 4.689%, off the fresh nine -month high at 4.728% seen on Wednesday.
US Dollar Index Technical Analysis: Counting down to Trump’s presidency
The US Dollar Index (DXY) is entering its last ten days of trading under President Joe Biden before President-elect Donald Trump’s inauguration on January 20. The question will be how much downside there is, given the general consensus that Trump’s policies will be inflationary and drive the US Dollar higher. Expect buyers to come in and quickly push the DXY back up, even with a weaker Nonfarm Payrolls release.
On the upside, it is key that the green ascending trend line can hold as support, although that is often not the scenario going forward. If the DXY can head and break above the 110.00 psychological barrier, 110.79 becomes the next big level. Once beyond there, it is quite a stretch to 113.91, the double top from November 2023.
On the contrary, the first downside barrier is 107.35, which has now turned into support. The next level that might halt any selling pressure is 106.52, with the 55-day Simple Moving Average (SMA) at 106.72 reinforcing this region of support.
US Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
