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Federal Reserve Leaves Interest Rates Unchanged, Maintains Monthly Asset Purchases

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  • Gold price action tumbles lower as the US Dollar strengthens broadly following the Fed. Get your $XAUUSD market update from @RichDvorakFX here:https://t.co/GWJcMiM3Vd https://t.co/X8WsTFwxFx
  • Fed's Powell: - No sense of panic in regard to inflation - I do not believe wage increases are causing price inflation
  • Fed's Powell: - High inflation prints not "what we were looking for" - Spike in inflation driven solely by supply side shock
  • Fed's Powell: - We expect RRP activity to remain elevated - Repo facilities performing as expected
  • Fed's Powell: - MBS and tapering were brought up by a number of FOMC participants - We will taper both (MBS & Treasuries) at the same time most likely
  • Fed's Powell: - Strong capital requirements are a "must" for banks, especially the largest banks - Capital requirements allow banks to continue to perform during severe downturns
  • The July FOMC press conference is hammering home this point: the labor market mandate is now on equal footing with the inflation mandate (which is atypical); and Powell is now making the case that the labor mandate is *more important* to normalization than the inflation side. https://t.co/saAmTwpTRw
  • Fed's Powell: - Fed has not made a decision on when taper will commence - Variety of opinions with in the Committee on when tapering should begin
  • Fed's Powell: - Transitory means not impacting longer-run inflation patterns - We must be extremely careful when it comes to the inflation mandate
Understanding the Importance of Friday’s US NFP for Financial Markets

Understanding the Importance of Friday’s US NFP for Financial Markets

Tyler Yell, CMT, Currency Strategist

Highlights:

  • Wage Inflation could trigger USD short covering, keep an eye on AHE
  • DXY trading at 15-month lows this week could extend on headline or details miss of estimates
  • Fed speakers this week raised caution on further rate hikes
  • Join our analysts live to see how the market responds to the headline print at 08:30 AM ET

Ahead of Friday’s Non-Farm Payroll release for July, the Dollar took another shot lower at new 15-month lows, which has helped by the EUR extending its gains above 1.19. The concern at hand within the Federal Reserve centers around falling inflation expectations, which can be captured from a few angles. However, this week has given rise to few counter-points that make the NFP print, and specifically, Average Hourly Earnings specifically important.

Show me how to navigate the US NFP Print on Friday With DailyFX Analysts

First, it’s worth knowing and can be seen on the DFX Economic Calendar that the expectation for the headline print for the July Change in Nonfarm Payrolls is expected at 180k, down from the prior reading for June of 222k. However, beyond the headline number, which has lost its significance on thefear that the jobs being added are not producing the revenue needed to support the hoped-for economic growth is Average Hourly Earnings (AHE). The Unemployment Rate is expected in at 4%, which is considered full-employment by the Fed’s standards, so it has also fallen to the wayside in anticipation of the AHE print.

Since 2015, AHE has risen from 1.9% Year over Year to a high of 2.9% in December 2016. However, we’ve seen a falling in 2017 that aligns with the weakness in the US Dollar. A further drop back would likely ignite fears that US inflation is continuing to fall and could extend USD weakness as we’ve seen in 2017 with a 9% drop in DXY.

Want to see how markets react to the first print of US NFP? Join us for our Live US NFP Round Table Coverage - Implications for Fed Outlook, FX Market

So what’s the good news? IN short, commodities are no longer the drag they were on inflation expectations thanks in large part to the summer rally in industrial metals and energy like Crude Oil. While the rally in commodities is not enough to shift the Fed’s rate hike outlook, the USD weakness is also no longer the strain or headwind that it was perceived to be in Q4 2016. An increase in AHE could give the Fed the courage they need to begin talking up expectations for a rate hike that would likely scare the emboldened traders that hold a short USD positions.

You will, of course, want to watch the headline number, but the most important aspect that you can expect the DailyFX analyst’s like Chris Vecchio, Paul Robinson, and David Song to cover and what will likely drive the market post-NFP is the digestion and potential ramifications of the AHE number from NFP.

But Wait, There’s More! CAD Employment Data Also at Friday - 08:30 ET

Understanding the Importance of Friday’s US NFP for Financial Markets

At the same time the US Non-Farm Payroll is announced, Canadian Employment will also be announced. As you can see above, USD/CAD has spent this week turning higher, and a positive shock in US data or a poor showing in Canada could bring a lot of volatility. This will make joining the live NFP coverage worth your while, especially if you’ve been tracking the incredible run of the Canadian Dollar since May. Canadian Net Change in Employment is +10k vs. last month’s +45.3k. Any announcement off the market expectations would likely trigger major USD/CAD volatility that will be covered during the live webinar.

You will not want to miss our live coverage, and you can register here for free.

These reasons and more are exactly why you should join us on Friday 15 minutes before the prints through 15 minutes after the 8:30 PM print to see what trading opportunities may emerge.

For your sake, we hope to see you there!

DailyFX Analyst Team

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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