Release of US monthly jobs report on Friday is the key event this week. Traders are looking for justification of Fed’s wording after monetary policy on Wednesday, which could be supported by solid numbers from US labor sector.
The Fed kept interest rates unchanged in the first policy meeting in 2018 but the last one under the leadership of Janet Yellen, as Jerome Powell is taking over as new chairperson of the US Federal Reserve.
But the central bank kept hawkish tone in the statement after policy meeting, highlighting solid economic growth and expecting that stubbornly low inflation would gradually rise towards projected level at 2% over the time.
This signaled that the Fed remains on policy tightening path, which is sign for further rate hike in 2018.
The US dollar was higher across the board in immediate reaction on Fed’s comments, but rally was limited and the greenback lost part of initial gains on subsequent pullback.
This time the central bank’s wording was not sufficient to sustain gains on quite hawkish stance, like it was the case just few years ago when the Fed was the only one among world central banks that started hiking interest rates.
Situation is now different as major world economies show strong signs of growth after a decade of stagnation and started or are on the way to start tightening their monetary policies.
The greenback now needs more positive signs from key sectors of the US economy to trigger stronger rally of the US currency which is in the downtrend for more than one year.
Initial signals came from Thursday’s release US jobless claims which unexpectedly fell in the week behind us and unit labor cost which rose strongly in the last quarter of 2017, heavily beating the forecast, as well as upbeat numbers from Manufacturing sector.
However, main event will be Friday’s release of US jobs data, which would support Fed’s hawkish stance on better than expected situation in US jobs sector in January, or would diminish rising hopes of more action From Fed this year, as the central bank has already planned.
Forecast show 184K new jobs created in January, which is above December’s 148K but well below figures of October (244K) and November when (252K) that followed unexpected fall to 16K in September 2017.
Another very important releases are unemployment rate which is expected to stay unchanged at 4.1% in January and average hourly earnings, also forecasted without changes in January at 0.3%.
Upbeat numbers from US labor sector are needed to trigger stronger recovery of the dollar, while miss would put greenback under renewed pressure.