NFP Could Restore Fed’s Rate Hike Confidence

There is no such thing as a slow week in the forex markets. Last week on paper looked like a good candidate with little market moving data on deck. The Chinese stock market and the tame first response by the government to contain the crisis changed all that. The USD was caught on the back-foot as the stock market sell off reached a global scale and investors looked for safe haven in the Japanese Yen and the European single currency. Gold gained versus the USD as uncertainty on a thin liquidity market combined for big losses for the big dollar who dragged emerging markets along for the ride.

The PBoC managed to appease the markets by doing what was expected and restored some stability. Commodities bounced towards the end of the week and stronger emerging markets benefited. The biggest casualty of the Chinese sell off might have been the September interest rate hike. The Federal Reserve has telegraphed for almost two years the end of low interest rates. The first time it did so it caused a tantrum in the markets as it announced its tapering of quantitive easing. The end of the tapering cycle started speculation of a tightening policy. The Fed has pointed to a “data dependent” monetary policy decision. The data has been mixed, earning the Fed and the USD some reprieve as the greenback has gained on interest rate divergence versus major currencies.

The June Federal Open Market Committee (FOMC) meeting was the most likely candidate, but the U.S. economy did not seem ready by the Fed’s estimations to handle a higher interest rate. Employment continues to be the strongest pillar of the U.S. recovery. Growth has stumbled with a horrible first quarter that has now been revised to just a bad one, but still the Fed waits. The Fed faces a missing the perfect window for a rate hike if it hasn’t done so already. Employment cannot continue improving at the same rate until it hits a wall as on paper full employment should be around the corner. Macro headwinds such as those out of Europe, Japan and right on cue: China have already delayed the Fed’s decision in June and now could have laid claim to September as well.

The non farm payroll report (NFP) will be published at 8:30 am on Friday, September 4. The U.S. economy has managed to record above 200,000 gains since the release on May 8 and an equal healthy figure is expected on Friday. The report will be heavily analyzed for signs of a strong recovery in all the components of employment and not just the top headline numbers like the unemployment rate and number of jobs. The quality of the jobs and the wage components should be more telling and could drive the USD higher. On the other hand a disappointing or mixed report will do the dollar no favors as if employment falters then the September rate hike will be off the table and the market will punish the USD.

USD events to watch this week:

Tuesday, Sep 1
10:00am USD ISM Manufacturing PMI
9:30pm AUD GDP q/q
Wednesday, Sep 2
8:15am USD ADP Non-Farm Employment Change

Thursday, Sep 3
7:45am EUR Minimum Bid Rate
8:30am EUR ECB Press Conference
8:30am USD Trade Balance
8:30am USD Unemployment Claims
10:00am USD ISM Non-Manufacturing PMI
Friday, Sep 4
8:10am USD FOMC Member Lacker Speaks
8:30am USD Non-Farm Employment Change

*All times EDT
For a complete list of scheduled events in the forex market visit the [MarketPulse Economic Calendar](

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza