US Dollar Outlook Bullish on Jobs Data Despite Trade War Risks

US Dollar, Fed, Nonfarm Payrolls- Talking Points

  • US Dollar may rise if employment data cools 2020 rate cut bets
  • Sino-US trade war tensions could sap upside momentum in USD
  • What is the outlook for Federal Reserve monetary policy in 2020?

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US Jobs Data: What to Expect

The US Dollar may gain against its major counterparts if a cascade of employment data shows strong job creation in the face of escalating US-China trade war tensions. However, upside momentum in the Greenback could be curbed if Sino-US relations take a turn for the worst. Earlier this week, the Greenback suffered after sour trade war news caused 2020 Fed rate cut bets to tick higher.

The primary data point traders are anxiously waiting for is the publication of US nonfarm payrolls data. Preliminary estimates have it pegged at 184k for November, significantly higher than the prior 128k print. Despite the slowdown in manufacturing – in large part due to the US-China trade war – the labor market in the services sector remains resilient.

The unemployment rate is expected to remain unchanged at 3.6 percent with weekly average earnings on a year-on-year basis to also remain unaltered at 3 percent. However, policymakers are concerned that employment figures may become less favorable if weakness in manufacturing spills into services. Were this to occur, Fed rate cut bets would likely rise with gold prices at the expense of the US Dollar.

Fed Monetary Policy Outlook

The Fed has reiterated that it is not on a pre-set course but rather is data-dependent and will adjust interest rates in accordance to prevailing economic conditions that fall under the purview of its mandate. While CPI data remains somewhat more tepid than what policymakers are hoping for, the strong labor market has offered officials the luxury of being able to put the breaks on further easing; at least for now.

Federal Funds Futures Implied Rate – December Contract Minus January Contract

Federal Funds Futures

Federal funds futures chart created using TradingView

2020 Fed rate cut bets show that markets are pricing in at least a 25-basis point cut, though earlier in September it was as high as 50bps. The perception of improved economic conditions on the basis of reduced risk of a no-deal Brexit and ethereal optimism about US-China trade talks has alleviated the urgency for further liquidity provisions. However, this is no way suggests there is not ample room for things to suddenly go wrong.

US DOLLAR TRADING RESOURCES

— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

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