Ahead of Friday’s employment report, Fed speakers increased the USD demand. However, the NFP report will be key data two weeks before the Fed meeting. The US employment numbers will make it clear what we have to expect from the central bank’s policymakers.
Bulls seem stronger than bears!
Slower growth of the labor market could be a sign of a slower pace of rate hikes, even though Fed officials still emphasize hawkish policies. On Monday, John Williams, president of the Federal Reserve Bank of New York said that restrictive policies would need to continue until 2023, and interest rates cut better not to start before 2024. Mr. Williams believes that the US economy will not fall into a recession. And despite the inversion of the US bond yield curve, St. Louis Fed President Bullard also does not expect a recession. The strength of the US economy and high inflation rates also are the reason why believe that Fed should continue the rate hike next year as well, while he sees 5%-7% as a suitable range for the Fed rates.
So, ahead of Friday’s nonfarm payrolls and while we can see more hawkish signs from Fed officials, expectations for a 75 bps rate hike are increasing. According to the FedWatch tool, the chance for a 50 bps rate hike is now down to 70% from 81% last week.
US dollar on Monday and Tuesday, mostly boosted by the hawkish remarks released by several Fed officials to gain more than 1.3% above106.50. From the technical point of view, 105.30 still is the key support for DXY, as you can see in the below chart. The main resistance also sitting at 108. For any further up or down trend, US dollar Index needs to pass these levels.