Could NFP save the dollar from a quite long downtrend? Dollar index has been losing since ca. 7 weeks, is correction coming to USD?
In general, we think that the turnaround in the US dollar has been long overdue and that the EUR/USD pair has only recently started moving towards levels we expect it to trend towards. That said, the move has been quite sharp and we’re hesitant to say it has been fully justified.
When it comes to Friday’s NFP report, we think that we’re unlikely to see too much volatility around the data, barring a significant deviation from expectations. We think that the Federal Reserve will ease the pace of rate hikes from December, and believe that this week’s NFP data is highly unlikely to get in the way of that. We actually believe that Thursday’s PCE data, the Fed’s preferred measure of inflation, could be more important in guiding Fed expectations and the dollar. Confirmation of the disinflation signal from the latest CPI report could cement market expectations for the Fed’s dovish pivot. If, on the other hand, core PCE inflation surprises to the upside, this could sow doubt among market participants, opening the way for a correction in the recent move lower in the US dollar.
