FX market outlook

FX market outlook

Posted on Monday, January 9 2017 at 9:21 am GMT+0000

Dollar extends employment report gains while pound drops on ‘hard Brexit’ talk.


The US dollar managed to maintain Friday’s gains or even extend them against certain currencies during Monday’s Asian trading.  Particularly against the Japanese yen the dollar climbed to around 117.50, while against the euro it traded at 1.0531.  The dollar had earlier pushed the single currency to as low as 1.0515.  Liquidity was overall thin because of a bank holiday in Japan, while there was a relative absence of market-moving developments following Friday’s all-important jobs numbers.

On Friday, the US employment report missed expectations with respect to the headline number of jobs created, while the unemployment rate ticked up to 4.7% as expected.  There was better news concerning wages however, as average hourly earnings rose at their fastest annual pace since 2009 and the report’s overall tone was consistent with additional Fed rate hikes in 2017.

Despite the significant gains, the US dollar index remained around 1.5% off the previous week’s highs as traders seemed to be wary of pushing the greenback too high ahead of President-elect Donald Trump’s press conference on Wednesday.  Trump is expected to outline details of his economic policies during the press conference ahead of his inauguration on January 20.

Sterling fell sharply during Monday’s session as the British Prime Minister seemed to back giving up the goal of EU single market access in return of controlling UK inward immigration.  Pound / dollar fell to a more than 2-month low of 1.2163, while euro / pound climbed to 0.8650 from Friday’s close of around 0.8573.  1.2080-1.2100 is a key area for pound / dollar as a break below that area could lead to fresh post-Brexit lows for the pair.

Looking ahead to the remainder of the day, no less than 3 Fed officials are scheduled to speak during the US session.  Rosengren, Lockhart and Evans could give some clues as to the timing of the Fed’s next rate hike, while the Bank of England Deputy Governor is also due to speak during the US session.  In terms of data, Eurozone November unemployment and the Eurozone Sentix investor sentiment index will be watched with some interest.  It will be relatively more quiet in the US, with only employment trends and consumer credit coming out.