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US Dollar May Rise as Jobs Report Boosts Fed Rate Hike Bets

US Dollar May Rise as Jobs Report Boosts Fed Rate Hike Bets

Ilya Spivak, Head Strategist, APAC

Talking Points:

  • Jobs report, Fed-speak put US rate hike speculation in the spotlight
  • US Dollar may rise vs. majors as wage inflation tops expectations
  • Comments from Governor Brainard may confirm Fed posture shift

All eyes are on May’s US Employment report in the final hours of the trading week. Consensus forecasts point to a 160k increase in payrolls, matching April’s outcome. The jobless rate is seen edging lower to 4.9 from 5 percent. Perhaps most critically, the year-on-year growth rate in average hourly earnings is expected to register at 2.5 percent, unchanged from the prior month.

While there is no precise definition of “full employment”, Fed seems to have adequately delivered on the jobs part of its mandate. Inflation has proven stubbornly low however, so making progress here seems most important in setting the stage for tightening monetary policy. An upside surprise on the hourly earnings reading has potential to do just that, fueling a hawkish shift in priced-in rate hike bets and sending the US Dollar broadly higher against its leading counterparts.

The case for such a scenario seems compelling. As noted earlier, leading manufacturing- and service-sector surveys from Markit Economics said inflation firmed in May. This was reinforced by ISM figures published earlier this week while the Fed’s Beige Book of regional economic conditions unambiguously asserted that “price pressures grew” and “tight job markets [were] widely noted”.

Fed-speak may add a layer of complexity to the equation. Comments from Chicago Fed President Charles Evans and Governor Lael Brainard are scheduled to cross the wires. Ms. Brainard has been one of most consistently dovish members of the rate-setting FOMC committee. If her remarks mirror the hawkish shift in officials’ rhetoric over recent weeks, this could go a long way toward convincing investors that a hike is in the offing.

Losing money trading the US Dollar? This might be why.

Asia Session

GMT

CCY

EVENT

ACT

EXP

PREV

22:45

NZD

Value of All Buildings SA (QoQ) (1Q)

5.3%

1.0%

2.8%

23:30

AUD

AiG Perf of Services Index (MAY)

51.5

-

49.7

00:00

JPY

Labor Cash Earnings (YoY) (APR)

0.3%

0.9%

1.5%

00:00

JPY

Real Cash Earnings (YoY) (APR)

0.6%

-

1.6%

01:00

NZD

ANZ Commodity Price (MAY)

1.0%

-

-0.8%

01:45

CNY

Caixin China PMI Services (MAY)

51.2

-

51.8

01:45

CNY

Caixin China PMI Composite (MAY)

50.5

-

50.8

02:00

JPY

Nikkei Japan PMI Services (MAY)

50.4

-

49.3

02:00

JPY

Nikkei Japan PMI Composite (MAY)

49.2

-

48.9

European Session

GMT

CCY

EVENT

EXP

PREV

IMPACT

06:30

EUR

Bundesbank Publishes Economic Forecasts

-

-

Low

07:45

USD

Fed's Evans Speaks on Economy and Policy

-

-

Medium

07:45

EUR

Markit/ADACI Italy Services PMI (MAY)

51.5

52.1

Low

07:45

EUR

Markit/ADACI Italy Composite PMI (MAY)

52.5

53.1

Low

07:50

EUR

Markit France Services PMI (MAY F)

51.8

51.8

Low

07:50

EUR

Markit France Composite PMI (MAY F)

51.1

51.1

Low

07:55

EUR

Markit Germany Services PMI (MAY F)

55.2

55.2

Medium

07:55

EUR

Markit/BME Germany Composite PMI (MAY F)

54.7

54.7

Medium

08:00

EUR

Markit Eurozone Services PMI (MAY F)

53.1

53.1

Medium

08:00

EUR

Markit Eurozone Composite PMI (MAY F)

52.9

52.9

Medium

08:30

GBP

Official Reserves Changes (MAY)

-

$728m

Low

08:30

GBP

Markit/CIPS UK Services PMI (MAY)

52.5

52.3

Medium

08:30

GBP

Markit/CIPS UK Composite PMI (MAY)

52.3

51.9

Medium

09:00

EUR

Eurozone Retail Sales MoM (APR)

0.4%

-0.5%

Low

09:00

EUR

Eurozone Retail Sales (YoY) (APR)

2.1%

2.1%

Low

Critical Levels

CCY

Supp 3

Supp 2

Supp 1

Pivot Point

Res 1

Res 2

Res 3

EUR/USD

1.1022

1.1097

1.1124

1.1172

1.1199

1.1247

1.1322

GBP/USD

1.4302

1.4368

1.4396

1.4434

1.4462

1.4500

1.4566

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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