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USD strengthens as markets eye the US jobs data ahead of the Fed meeting next week

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By Daniela Sabin Hathorn, senior market analyst at Capital.com

Investors await the latest jobs data from the US to try and get more clarity on the likely route of the Federal Reserve’s monetary policy. The stock market has snapped its recent winning streak as indecision creeps in at a time when most rallies look overextended. The US dollar has managed to shake off the negative bias and is reversing some recent losses despite US yields continuing to pull back.

It’s been clear from past comments that the Fed believes that further loosening in the labour market is needed to bring inflation back to its long-term target. October was the first time in a while that the jobs data failed to reach expectations, adding fewer jobs than expected and seeing a marginal rise in the unemployment rate.

US nonfarm payrolls by industry

Past Performance is not a reliable indicator of future results.

As per Reuters data, forecasts for November expect to see a small uptick in jobs added – 175k from 150k – and the unemployment rate staying unchanged at 3.9%. Average hourly earnings are forecasted to drop to 4%, the lowest level in 14 months. If the data comes in below expectations it could further fuel the belief that the Fed tightening cycle is over, potentially bringing forward estimates of when the first rate cut will be.


In his speech on Friday, Fed Governor Jerome Powell tried to convince markets that he remains on a hawkish path, suggesting once again that rates could be raised further if the data deemed so necessary. The reaction in markets – a pullback in the dollar and yields, and another rush higher in gold and stocks – proved that the hawkish tone is not convincing investors, who believe the hiking cycle is over. Instead, Powell’s insistence is viewed as an attempt to keep expectations of rate cuts at bay, as giving in to the fact there are likely no more rate hikes would give an overly dovish view, potentially having a detrimental effect on the disinflation process.

The meeting next Wednesday will be accompanied by the updated economic projections. The focus will be on the dot plot to see if it has shifted since September, which showed more than half of the members expected rates to remain above 5% throughout 2024. A key deciding factor in this will be how inflation evolves. In the September projections, the Fed forecasted it to remain between 2.1% and 3.5% in 2024. The November CPI data will be released on Tuesday next week, the day before the FOMC meeting concludes.

FOMC target level for the federal funds rate, September 2023

FOMC target level for the federal funds rate

Past Performance is not a reliable indicator of future results.

On the charts, EUR/USD has been pulling back as the dollar regains its footing. So far the pullback is being contained above the 1.08 mark which is aided by the 200-day SMA (1.0820) but as the RSI starts to dip below the 50 line the bias could start to turn lower as it catches up to the bearish momentum. A stronger US jobs reading on Friday could strengthen the dollar as it pushes back the perceived timeline for Fed rate cuts, which would likely weigh on EUR/USD further.

EUR/USD daily chart

EURUSD daily chart

Past Performance is not a reliable indicator of future results.

Another market that has been closely watched in recent months is gold. The precious metal has been dominating the scene as safe-haven demand skyrocketed earlier in October as the ongoing conflict in the Middle East started. Despite the concern in markets having subsided since then, the increase in expectations of a more dovish Fed going forward has helped gold continue its bullish advance. A weaker US jobs reading would likely boost the precious metal higher.

XAU/USD continues to trade above the $2,000 mark but buyers have been struggling to keep the momentum going as the commodity ventured into the overbought range after the jump higher during the Asian session on Monday. Some sideways consolidation, or a deepening of the pullback, wouldn’t be uncommon in the coming days as buyers test the appetite to continue to push higher. That said, if data continues to weaken the rally could resume in the coming days.

Gold (XAU/USD) daily chart

Gold XAUUSD daily chart

Past Performance is not a reliable indicator of future results.

Video: Is the US Dollar regaining its sparkle?

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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