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US Dollar May Rise as Jobs Data Boosts Fed Rate Hike Prospects

US Dollar May Rise as Jobs Data Boosts Fed Rate Hike Prospects

Ilya Spivak, Head Strategist, APAC

Talking Points:

The Canadian Dollar narrowly outperformed in otherwise quiet Asia Pacific trade. The move appeared to reflect follow-on momentum after the currency bested all of its G10 FX counterparts in the prior session, seemingly buoyed by rising crude oil prices and impressively upbeat second-quarter GDP data.

The US Dollar was only on the upswing as markets braced for the release of August’s official employment report. Traders probably sought to rebalance exposure closer toward neutral after the greenback tumbled in the wake of soft PCE inflation figures that put core price growth at a 17-month low in July.

The labor-market data set is expected to show a slight slowdown in job creation – with 180k added to payrolls compared with 209k in the prior month – while the unemployment rate holds steady at 4.3 percent. Perhaps most critically, the on-year pace of wage inflation is seen rising to a six-month high of 2.6 percent.

Broadly speaking, US economic news-flow has markedly improved relative to consensus forecasts since mid-June. More of the same this time around – especially on the wage growth front – may go a long way toward boosting prospects for another Fed rate hike before the calendar turns to 2018.

Needless to say, such a result is likely to send the US currency higher. As it stands, investors’ priced-in policy bets (implied in Fed Funds futures) put the probability of a third hike this year at a mere 33.8 percent. That leaves ample room to readjust portfolios to reflect a more hawkish FOMC.

The European data docket is relatively tame, with UK manufacturing PMI data headlining an otherwise lackluster offering. A downtick is expected, which may pass without much of a reaction from the British Pound considering it would only reinforce bets on a dovish BOE through mid-2018.

What do retail traders’ buy/sell decisions hint about FX market trends? Find out here!

Asia Session

US Dollar May Rise as Jobs Data Boosts Fed Rate Hike Prospects

European Session

US Dollar May Rise as Jobs Data Boosts Fed Rate Hike Prospects

** All times listed in GMT. See the full DailyFX economic calendar here.

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

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