Markets now await the all-important US payrolls report, which will provide clues about the state of the US labor sector and will help determine the likely path ahead for monetary policies.
The report usually has an outsize impact on forex and stock markets, and will be used as a gauge to determine the odds of an early Fed rate cut in March.
The report comes after the highly bullish Federal Reserve’s meeting this week which sent the dollar surging against rivals.
Fed’s Meeting
The Federal Reserve held interest rates flat as expected this week at below 5.5%, already the highest since 2001.
The Fed said the US economy is performing better than expected, which convinces the Fed to slow down when it comes to changing its monetary policy, especially as achieving the 2% inflation target takes more time.
The Fed said it’s not appropriate to cut down the target range of interest rates this year until inflation is sustainably moving towards 2%.
The Fed said that US economic outlook remains uncertain, with the FOMC remaining highly attentive to inflation risks.
Powell
Fed Chair Jerome Powell said on Wednesday that FOMC members are committed to bringing inflation back to the 2% target, noting the strength of the economy, which would allow for a rate cut “sometime”.
Powell said the strength of the US economy surprised analysts more than once due to strong consumer demand, with the labor sector heading for a better balance overall.
Powell said that what the Fed needs is total confidence that inflation is heading towards 2% in the medium term.
When asked about an interest rate cut in March, he said it’s unlikely, however everying relies on data.
US Rates
Following the meeting, the odds for a 0.25% Fed interest rate cut in March tumbled from 52% to 35%, down from over 80% just a month ago.
Traders now expect a total of 140 basis points of interest rate cuts in the US throughout 2024, down from 160 basis points in previous forecasts.
US Payrolls Report
The US economy is expected to have added 187 thousand new jobs last month, down from 216 thousand in December, while unemployment is expected up to 3.8% from 3.7%, as average hourly earnings are expected up 0.3%.
Obviously, strong results will hurt the odds of an early rate cut in March, underpinning the dollar and US treasury yields, and vice versa.
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