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

2016-06-03 07:31:00

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