Hawkish comments from Fed officials that have been going on for two days pushed market interest rates higher, and the US Dollar strengthened with it.
But these statements do not seem to be enough for investors. Treasury bond yields have dropped again, and the US Dollar has lost ground. The correlation between the US dollar and market interest rates is positive and is working quite accurately these days.
The market continues to bet on less aggressive action from the Fed regarding interest rates. This happens even though some Fed officials insist on continuing to hike rates decisively to put an end to what is considered the main challenge of the US economy: inflation.
As Chairman Jerome Powell indicated in his statement after the last Fed meeting, everything will depend on the known economic data. Some of the most relevant metrics will be published today: the unemployment rate and Non-Farm Payrolls. The Federal Reserve expects the unemployment rate to increase and fewer jobs to be created due to a tighter monetary policy.
The data on the wages' evolution is also important; the number of average hourly earnings should give way so that the Fed can feel more comfortable ending inflation.
Therefore, today's data may impact the market, mainly the price of the major financial assets.
If the figure is weak, the unemployment rate will rise, and the number of Non-Farm Payrolls will be lower than last month’s average. This would mean that the Fed will not need to raise rates aggressively; therefore, the Treasury bond yields should ease further. If so, it would positively impact the stock markets, and the US Dollar would continue to weaken.
Otherwise, a strong jobs number would push bond yields back up, and the US Dollar would strengthen.
One of the most sensitive pairs in this scenario is the USD/JPY, which is highly correlated with interest rates.
This pair has rebounded from a major support level at 130.50 100-day moving average after a drop from the highs at 139.40.
A weak Non-Farm Payrolls data could drag it lower to this support zone.
Sources: Bloomberg, Reuters
