On Friday, analysts at ING highlighted the significance of the upcoming jobs report for the U.S. dollar, suggesting that it may have a greater impact than the Federal Reserve's meeting. According to the firm, the narrative surrounding the Federal Reserve's policy indicates that there may be no easing in 2024, which could open the door for further dollar strength. This comes as the financial markets are anticipating key U.S. data releases, including the payrolls report this Friday, and potential foreign exchange intervention in Japan.
The Federal Open Market Committee (FOMC) is set to begin its two-day meeting on Tuesday, with expectations to maintain interest rates. The focus will likely be on the language used to describe future policy, particularly in light of recent inflation data and job figures. Last month's robust employment numbers and persistent inflation may lead Fed Chair Jerome Powell to adopt a cautious stance on the possibility of rate cuts. On April 16, Powell noted the data did not increase confidence in the disinflation trajectory and suggested that rates could remain high if inflation pressures continue.
From a foreign exchange standpoint, the U.S. dollar has experienced a decline following the last three FOMC announcements. However, the chances of a dovish tone from Powell are deemed lower this time around. Market expectations currently lean towards a reduction in easing by December, and upcoming data releases such as ADP (NASDAQ:ADP) payrolls, JOLTS job openings, and the ISM manufacturing index will be closely watched before the FOMC's announcement.
The jobs report on Friday is poised to be a pivotal event, potentially overshadowing the Fed meeting. Indicators such as the NFIB small business hiring survey and the ISM employment index suggest a deceleration in employment growth for the second quarter. ING's economics team anticipates a 210,000 increase in payrolls, which is below the 250,000 consensus. The dollar's trajectory is expected to be more influenced by the jobs data than the Fed's decisions, with the potential for the currency to lose ground if the payroll figures disappoint.
Before the week's risk events, ING maintains a positive outlook on the dollar, despite a recent dip following suspected foreign exchange intervention in Japan. The firm believes that downside risks to the EUR/USD could drive the dollar back to the 106.0 level in the lead-up to the Federal Reserve meeting.
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