A blow to easing bets

The week just gone saw the dollar return to the limelight, with arguably the two biggest events of the week both taking place in the US. The first of these was Wednesday’s Fed meeting. Whilst the Fed’s hiking bias was finally dropped, Powell all but ruled out a March rate cut in a more hawkish than expected intervention. This move sparked a temporary USD recovery, with the greenback having found itself on the back foot heading into the meeting. But the markets’ willingness to ignore Powell and sell the dollar saw this reversed on Thursday once again. Banking worries and a handful of soft second tier data releases gave markets the needed excuse to unwind the initial post-Fed price action. The wisdom of this was challenged in short order, however, with Friday’s nonfarm payrolls release delivering a bombshell to round out the week. Not only did the headline number show a massive 353k jobs added by the US economy in January, but upwards revisions saw December’s print rise to 333k as well. Combined with a flatlining unemployment rate, falling participation, and hourly earnings recording that largest monthly rise since March 2022, the release reinforced Powell’s message from earlier in the week and torpedoed any remaining chances of a March rate cut from the Fed.

Whilst the weekend may well see Jerome Powell quietly whispering “I told you so” under his breath, next week the focus for many FX traders will switch to emerging markets. In CE3, both Poland and the Czech Republic play host to policy decisions, though only the latter is subject to much uncertainty. Latam too is set for a big week, though a rate cut from Banxico still looks unlikely. Instead, it will be inflation numbers to keep an eye on. Developed markets still have their share of entertainment coming up however, notably down under with a policy decision set to land from the RBA. Lastly, the BoC will have its fingers crossed that jobs data once again indicates that inflation pressures continue to ease, unlike data from south of the border this past week. For the US, however, a light data calendar means that traders will have plenty of time to chew that fat on Friday’s jobs data, a dynamic that could well see the recent move higher for the dollar extending next week.

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Authors: 

Simon Harvey, Head of FX Analysis

María Marcos, FX Market Analyst

Nick Rees, FX Market Analyst

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