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US Dollar at Risk as Soft Jobs Data Stokes Dovish Fed Policy Bets

US Dollar at Risk as Soft Jobs Data Stokes Dovish Fed Policy Bets

2019-01-04 07:30:00
Ilya Spivak, Head Strategist, APAC
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TALKING POINTS – US DOLLAR, JOBS, EURO, CPI, YEN, STOCKS

  • US Dollar vulnerable as soft jobs data spurs dovish Fed outlook shift
  • Euro likely to overlook inflation downswing on ECB policy standstill
  • Yen down, Aussie Dollar up as markets retrace Apple-linked volatility

December’s US employment data takes top billing through the end of the trading week. The report is expected to show a 184k rise in nonfarm payrolls while the unemployment rate holds at a five-decade low of 3.7 percent and wage inflation backs off a nine-year high, inching down to 3 percent on-year.

US economic data outcomes have increasingly underperformed relative to baseline forecasts in recent months, painting analysts’ models as too rosy and opening the door for a downside surprise. Leading activity surveys including Markit Economics’ PMI and the Fed’s Beige Book bolster the case for a soft result.

Such an outcome may drive further dovish drift in Fed policy expectations, hurting the US Dollar. The 2019 outlook priced into interest rate futures now puts the probability of a cut at over 75 percent having envisioned two hikes as recently as early November.

EURO MAY OVERLOOK CPI DATA ON ECB POLICY STASIS

The Eurozone CPI report headlines the European calendar. The headline on-year inflation rate is expected to fall, hitting an eight-month low of 1.7 percent. However, the release might be mostly overlooked by the Euro considering its limited implications for the near-term direction of ECB monetary policy.

As it stands, the markets put the probability of a rate hike before the calendar turns to 2020 at a mere 32.1 percent. The final revision of December’s composite Eurozone PMI print is seen confirming regional activity growth at the slowest since November 2014, bolstering the case against tightening.

YEN DOWN AS MARKETS DIGEST APPLE-DRIVEN VOLATILITY

The Japanese Yen underperformed in Asia Pacific trading hours, retracing lower after spiking to a 15-month high amid broad-based risk aversion yesterday. That move was inspired by Apple Inc. The company unexpectedly cut its revenue outlook, stoking global slowdown fears. The Australian Dollar was also in corrective mode, edging higher having tumbled amid Apple-inspired bloodletting.

See our market forecasts to learn what will drive currencies, commodities and stocks in Q1!

ASIA PACIFIC TRADING SESSION

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

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

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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