Apr 04 2008
All Eyes On The Nonfarm Payrolls after a stronger than expected ADP.
The USD has rebounded over last few days leading up to today’s Non-Farm Payrolls report. Fed Chairman Bernanke said on Wednesday that the U.S. economy may fall into recession in the first half of 2008, although he was less pessimistic than expected, which led investors to scale down expectations for aggressive monetary easing. Interest Rate expectations for the FOMC meeting at the end of this month have been strongly diverted in favor of a 25bp vs. 50bp cut. According to Interest Rate Futures Contracts on the Chicago Board of Trade, traders saw yesterday a 20% chance that the Fed will cut rates by half a percentage point, compared with 42% odds a week ago.
The greenback weakened about 1% from yesterday’s highs vs. the EUR after the U.S. Labor Department said Initial Jobless Claims increased by 38K last week to 407K, the highest since September 2005. The USD traded at $1.5661 per EUR at 4:00 p.m. in Tokyo, after touching a one-week high of $1.5511 yesterday.
Although markets have grown more optimistic about the U.S. economy in recent days, investors do not seem to believe that the present financial turmoil is coming to an end. Concerns about the U.S. economy still remain high. Data showing first time applications for U.S. Unemployment rose last week to a 2.5 year high, keeping the greenback under pressure ahead of a today’s Payrolls report. According to the median forecast, U.S. Payrolls probably shrank by 50,000 last month. The last time the economy lost jobs for at least 3 straight months was in 2003, at the onset of the Iraq War.
Dollar trading should stay calm today until the release of Non-Farm Payrolls, where will likely see volatile behavior. If Payrolls return with positive results, expect dollar bullishness to continue up until the close of the markets.
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