Can The U.S. Jobs Report Maintain The Fed-Engineered Calm?

 | Jun 30, 2021 07:56AM ET

As

speculation

about

the

Fed’s

next

course

of

action

reaches

fever

pitch,

attention

will

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turn

to

the

latest

nonfarm

payrolls

report

on

Friday

(12:30

GMT).

The

all-important

jobs

data

could

set

the

tone

for

the

summer

as

investors

prep

for

possible

taper

signals

at

August’s

Jackson

Hole

symposium.

With

inflation

soaring,

the

not-so-hot

labour

market

has

been

the

Fed’s

main

rationale

for

putting

off

the

start

of

taper

discussions.

Progress

in

the

jobs

recovery

is

seen

as

paramount

for

greenlighting

the

process.

However,

the

June

report

may

not

change

much

in

terms

of

how

fast

the

jobs

market

is

recovering,

meaning

the

US

dollar

could

stay

rangebound.

Yield

gyrations

settle

down

It’s

been

a

tumultuous

month

for

bond

markets

as

the

benchmark

10-year

Treasury

yield

whipsawed

twice

on

flipflopping

views

on

how

soon

the

Federal

Reserve

will

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begin

to

pull

back

its

colossal

pandemic

stimulus.

Things

settled

down

somewhat

last

week,

however,

after

Fed

Chair

Jerome

Powell

reiterated

that

the

surge

in

inflation

will

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likely

be

transitory

a

view

that

seems

to

be

supported

by

a

majority

of

FOMC

members

even

though

some

policymakers

have

grown

more

wary

lately

about

the

risks

of

high

inflation

becoming

stickier.

Markets

haven’t

totally

unwound

bets

of

an

earlier-than-expected

rate

hike

either,

as

Fed

fund

futures

point

to

more

than

70%

odds

of

a

rate

rise

by

December

2022

and

short-term

yields

remain

near

their

post-FOMC

meeting

highs.

The

flatter

yield

curve

reflects

easing

concerns

about

more

aggressive

rate

increases

in

the

longer-term

as

the

Fed

is

signalling

it

could

move

early

should

inflation

not

fall

back

as

expected.

If

on

the

other

hand

the

jobs

figures

disappoint,

dollar/yen

may

initially

slip

towards

the

78.6%

Fibonacci

retracement

of

110.21,

while

a

sharper

selloff

could

see

the

losses

extend

until

the

50-day

moving

average

near

109.45.

But

in

the

event

that

the

NFP

report

fails

to

produce

any

shocks,

there’s

a

good

chance

the

dollar

index

will

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end

up

consolidating

between

91.50

and

92.50

over

the

next

few

weeks

as

investors

await

fresh

clues

from

the

Fed,

which

are

anticipated

to

come

at

the

annual

Jackson

Hole

symposium

on

August

26-28.

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