Despite the president's protestations, the actual data makes it clear that U.S. job creation has downshifted in recent years, though that is not entirely unexpected or even necessarily negative for the labor market. Heading into today's report, the trend was showing continued moderation over the last four years.
On the surface of today’s landscape, there truly was not a catalyst the dollar dump. Yesterday, the Fed paved the way for four rate hikes this year. European Central Bank member Coeure implied that a stronger Euro would slow down the ECB’s plan to tighten while encouraging a currency war. U.S weekly Jobless Claims beat expectations.
Friday’s key event risk will be the U.S. jobs report for January, which should offer fresh insight into the health of the U.S. labor market. With the Federal Reserve expressing optimism over inflation rising this year and a brighter outlook for the economy, today’s NFP report will be in sharp focus. Markets expect the U.S. economy to have gained 180k jobs in January, with average earnings up by 0.3%, while the unemployment rate is expected to remain unchanged at 4.1%.
In the event the data beats expectations then it makes sense to look for signs of dollar strength against currencies which have underperformed, such as the yen. While the likes of the EUR/USD, Swiss franc/dollar (CHF/USD) and the British pound/dollar (GBP/USD) have rallied above their highs last year, the JPY/USD has yet to do the same.
Equity markets are again under pressure this morning and investors await the release of January’s Nonfarm Payroll Report at 7:30 am Central. The S&P 500 hit our main target at 2798 with an overnight low of 2797. Stocks in Europe are also sliding sharply, the DAX is down more than 1% again today and has lost more than 5% since its peak Jan. 23.
The euro/Japanese yen (EUR/JPY) currency pair is often considered to be a barometer for risk appetite. However, it is not displaying those characteristics at all at the moment. Today’s 1.4% drop in the German DAX index should have weighed heavily on this pair, but didn’t.