Dollar Soars As Fed Minutes Suggest End To QE, NFP Watched
ActionForex | Jan 04, 2013 05:11AM ET
Dollar strengthened sharply overnight as FOMC minutes showed that most policy makers saw quantitative easing ending in 2013. The minutes noted that a few members expressed the view that ongoing asset purchases would likely be warranted until about the end of 2013. Meanwhile, several others thought that it would probably be appropriate to slow or stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet. Nonetheless, the announcement of additional easing back in December was justified as without further policy accommodation, economic growth might not be strong enough to generate sustained improvements in labor market conditions. The development in major dollar pairs are starting to argue that the post fiscal cliff selloff in dollar was just a knee jerk reaction. EUR/USD is heading back towards 1.3 psychological level. Indeed, GBP/USD's break of 1.6066 support indicates that earlier break of 1.63 was a bull trap. Though, the weakness in the Japanese yen remains clear for the moment.
Suggested readings on FOMC Minutes:
- U.S. Highlights of the Minutes from the December FOMC Meeting
Focus today will turn to employment data from U.S. today. Nonfarm payroll is expected to show 145k growth in the job market in December while unemployment rate is expected to be unchanged at 7.7%. Yesterday's strong ADP report, with 215k private job gains in December versus expectation of 138k, raised hope of upside surprise in NFP today. The employment component of ISM manufacturing also staged a strong rebound back to 52.7 in December, up from 48.4 in November, and was even higher than October's 52.1. The four-week moving average of initial jobless claims dropped to 360k on December 29, down from November 24's 406k. However, conference board consumer confidence dropped to a four month low of 65.1. Overall, the leading indicators are supportive to a solid NFP figure today. Dollar should be firm against other major currencies in case of upside surprise in NFP, but we'd prefer USD/JPY rather than other major pairs in that case considering uncertainties in the impact of risk appetite.
Also, a number of market moving indicators would be released today. UK PMI services is expected to dropped slightly to 50.1 in December but stays above 50 level. The data would trigger some volatility in EUR/GBP cross. Canada will also release employment data and is expected to show zero growth in December with unemployment rate up slightly to 7.3%. Meanwhile, U.S. will release ISM services which is expected to drop slightly to 54.3 in December.
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