Dollar Weaker Ahead of US Jobs Report

Fed Chair nomination and concerns with tax reform pressure USD

The US dollar is lower against major pairs ahead of the release of the U.S. non farm payrolls (NFP) on Friday, November 3 at 8:30 am EDT. The US is expected to have gained more than 300,000 jobs rebounding from the impact of hurricanes in the September report. The US currency has been weaker after the U.S. Federal Reserve decided to keep rates unchanged in its November meeting, President Trump nominated Jerome Powell to the position of Chair and some disappointment with the US tax reform details.

The pound fell on Thursday despite the Bank of England (BoE) hiking for the first time in 10 years. Rising inflation on a slowing economic recovery ahead of the Brexit divorce forced the hand of the central bank who is now ready to raise rates at a gradual pace and to a limited extent. The actual 25 basis points lift up to 0.50 percent was already priced in so market reaction was going to center on the actual wording of the statement and the press conference with Governor Mark Carney.

The US dollar will look ahead to the release of employment data while the market digests the appointment of Fed Governor Jerome Powell to the Chairman position. Fed Chair Janet Yellen’s term will end in February, she has already congratulated and committed to work on a smooth transition. Given that he is already a part of the FOMC Powell’s confirmation by the Senate should go without further issues.

The EUR/USD gained 0.32 percent on Thursday. The single currency is trading at 1.1655 after the USD fell following the reveal of the tax reform bill. The impact on the budget deficit is problematic because it would only pass if there is Democratic support for it, even assuming Republicans are all in favour. So either some of the tax cuts will have to be pared down to make it passable with 51 votes, or there needs to be a bipartisan outreach.

The appointment of a safe choice in Jerome Powell, who was a supporter of Yellen’s decisions at the helm of the U.S. Federal Reserve is seen as less hawkish, but it also means that the central bank will remain on a tightening path and with more positions to be filled he will get some latitude to reshape the Fed going forward.

The GBP/USD lost 1.39 percent on Thursday. The pound is trading at 1.3059 after the Bank of England (BoE) raised rates by 25 basis points as anticipated. The rate hike marks the first time in 10 years that the central bank has lifted its benchmark rate. The rate now stands at 0.50 percent as concerns about high inflation continues. Brexit is the main concern, as the aftermath of the referendum to divorce form the European Union has caused the currency to drop, making imports higher. Wages have not climbed and with big question marks around economic growth with rising inflation the BoE has been forced to hike.

The gloomy tone of BoE Governor despite the rate hike took its toll on the currency. The market is viewing the monetary policy decision as a one-and-done. The vote in the Monetary Policy Commission was a mirror image of the last meeting with 7 members voting for a rate hike and 2 against. The BoE is adamant that it will keep hiking rates, but the use of “gradual” in the statement was read as more dovish than intended by the central bank.
Market events to watch this week:

Friday, November 3
5:30 am GBP Services PMI
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate
10:00 am USD ISM Non-Manufacturing PMI

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

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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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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