US Jobs and Fed to Guide Dollar

Dollar Lower Awaiting Employment Data and Fed Statement

Chair Yellen’s Last Fed Meeting as Chair

The USD is trading lower versus most majors ahead of US President Donald Trump’s first State of the Union address, January’s monetary policy statement from the US Federal Reserve and the ADP private payrolls report. Strong economic data from both sides has seen the EUR/USD gain in the last 24 hours with a little bit of help from the US Treasury secretary who said today that a strong dollar would be in the country’s best interest.

  • Trump will deliver his first State of the Union address
  • US private payrolls forecasted to have added 191,000 jobs
  • Fed expected to keep rates unchanged on Janet Yellen’s last meeting as Chair

The EUR/USD gained 0.12 percent on Tuesday. The single currency is trading at 1.2396 after strong eurozone data was released today. The yearly GDP growth was higher than the estimate at 2.7 percent and validating the forecasts for an end of QE and higher rates by the end of the year. The European Central Bank (ECB) has tried to tone down optimism but the market is buying EURs as political uncertainty remains in the US despite strong fundamentals and tighter monetary policy.

European inflation has remained subdued and one of the main talking points by ECB President Mario Draghi. The European Consumer Price Index (CPI) estimate will be released by Eurostat on Wednesday, January 31 at 5:00 am EST. A higher than the expected 1.3 percent reading could further pressure the central bank to act sooner rather than later to shift from stimulus to tightening.

The U.S. Federal Reserve hiked three times in 2017 and is on track to do the same in 2018. Fed Chair Janet Yellen will step down later this week with Jerome Powell ready to assume the reigns of the central bank. With no press conference in the January meeting the market will be left to scan the statement looking for clues, but more will come in March when Powell helms his first Federal Open Market Committee (FOMC) and faces the financial press.

The ADP non farm payrolls report will be published on Wednesday, January 31 at 8:15 am EST. Economists are anticipating a gain of 191,000 jobs slowing down from the 250,000 gains in December. The ADP report will set further expectations for Friday’s release of the U.S. non farm payrolls (NFP) expected to add 184,000 jobs after the disappointing 148,000 at the end of last year.

The USD has been on the back foot against major currencies for most of 2018. The rally that followed the victory of Donald Trump in the November 2016 elections was driven by tax reform and infrastructure promises. The 12 month period before the promise and the reality proved to be too much for a market that was expecting a quicker turn around and the greenback depreciated in 2017. This year follows a similar trend with the euro hitting three year highs and even the pound recovering to pre-Brexit levels thanks to a softer dollar.

Market events to watch this week:

Wednesday, January 31
8:15am USD ADP Non-Farm Employment Change
8:30am CAD GDP m/m
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
Thursday, February 1
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI
Friday, February 2
4:30am GBP Construction PMI

*All times EST
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