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US Dollar Caught Between Jobs Data, Fading Tax Cut Hopes

US Dollar Caught Between Jobs Data, Fading Tax Cut Hopes

2017-11-02 07:00:00
Ilya Spivak, Head Strategist, APAC
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Talking Points:

  • BOE policy update has likely sapped significance of UK PMI data
  • US Dollar may rise as jobs data signals Fed rate hike cycle on track
  • Fading hopes for inflationary tax cuts might undermine USD gains

A pair of UK PMI surveys headline an otherwise quiet European data docket. The outcomes seem unlikely to mean much for the British Pound however after the BOE firmly locked itself in wait-and-see mode with yesterday’s policy announcement. That is likely to put US employment data firmly in the spotlight through the end of the week.

Economists expect to see that the economy added 313k jobs last month after September’s sobering 33k drop as the impact of weather-related disruptions dissipates. The unemployment rate is seen holding unchanged at 4.2 percent while wage inflation cools a bit, edging down to 2.7 percent from an eight-year high of 2.9 percent recorded previously.

On balance, investors will look for evidence that the economy has made it through a challenging hurricane season without suffering long-term damage and upsetting the prospects for reflation. Data broadly in line with expectations ought to deliver as much, which may offer the US Dollar a bit of a boost as traders are reminded that the central bank is on course to keep raising rates after an all-but-certain hike in December.

Fading confidence in seeing tax cut legislation before year-end may cap any foray to the upside that the greenback attempts however. Republican leaders in the House of Representatives unveiled a plan that is already getting significant push-back from within their own ranks. Headlines highlighting more of the same might derail hopes that an inflationary fiscal stance will produce steeper tightening in 2018.

The Australian Dollar underperformed in Asia Pacific trade as disappointing retail sales data weighed against RBA rate hike prospects, with the currency falling alongside local bond yields. Meanwhile, the New Zealand Dollar continued to push higher in a move that seemed corrective as the markets continue to digest politically-driven weakness that brought the currency to a six-month low last week.

What is the #1 mistake that FX traders make, and how can you fix it? Find out here!

Asia Session

US Dollar Caught Between Jobs Data, Fading Tax Cut Hopes

European Session

US Dollar Caught Between Jobs Data, Fading Tax Cut Hopes

** 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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