Preview for USD and September NFPs; GBP's Brexit Backlash
- Both DXY and USDOLLAR have started to clear breakout levels.
- No definite explanation for last night's mini-flash crash in the British Pound...best guess? Algos breaking down in an illiquid market.
- See the DailyFX economic calendar for the week of October 2 to October 7.
The September US NFP report will move markets at 12:30 GMT today. Markets probably won't care for much longer after that. A simply modest print may prove to be all the US Dollar needs to regain some footing, as its entire rally recently has been driven by negative exogenous factors (Brexit fears, European banking issues, viability of BOJ easing) rather than positive endogenous factors (the Atlanta Fed GDPNow Q3'16 GDP tracker has sunk from +3.8% to +2.2% since early-August). Much of the US Dollar's recent strength can simply be attributed to causes elsewhere.
As discussed yesterday, the trend of +200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind. In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view.
By the Atlanta Fed Jobs Growth Calculator, assuming a 4.8% longer term unemployment rate, the economy only needs +105k job growth per month to sustain that level. Regardless of today's report, there's another factor to consider when looking at the potential impact on Fed funds futures contract implied probabilities: the US Presidential elections.
With today's NFP report being one of three before the December meeting (when the Fed next furnishes its staff economic projections), and the US presidential election in such close proximity to the Fed's November meeting, it seems very likely that today's US labor market report leaves only a small footprint in traders' minds.
--- Written by Christopher Vecchio, Currency Strategist
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