Week Ahead – Could there be another NFP shock in store for the dollar?
XM Group | May 28, 2021 10:12AM ET
Steering NFP expectations after going badly off the mark
The miss in April’s headline jobs number was one of the biggest on record, tempering expectations about how soon the Fed will dial back its stimulus. Until that point, the Fed’s argument that the economic recovery in the United States still needs plenty of support in the face of rising inflation was seen as insufficient. However, markets are now convinced the Fed won’t budge until the recovery is more complete and it has a clearer view on the inflation outlook.
The latest nonfarm payrolls report on Friday is unlikely to change that narrative, but after the recent run of unimpressive data, perhaps there is a small risk that some market participants have now become over pessimistic and the big miss turning into a big beat can’t be ruled out in May.
Analysts are forecasting a gain of 621k jobs in May, which would be a significant acceleration from April’s 266k print. The unemployment rate is expected to have dipped from 6.1% to 5.9%, while average earnings are forecast to have risen 0.2 percentage points over the month.
More crucially, ECB officials have lately been downplaying speculation that they will discuss slowing the pace of bond purchases in June, yet, the euro’s positive bias has mostly stayed intact. Signs that the Eurozone’s recovery has started to catch up with America’s is supporting the single currency and as long as that optimism holds, the euro’s downside from a more dovish ECB could be limited.
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