Dollar needs impressively strong NFP report to advance noticeably – MUFG

The more nuanced approach to monetary policy going forward suggested by Fed Chairman Jerome Powell’s speech suggests that jobs reports in the coming months will be even more important. The economists of MUFG Bank point out that impressive Non-Farm Payroll numbers are needed to lift the US dollar.

Employment data is increasingly important

“When Fed Chairman Jerome Powell talks about avoiding a ‘collapse of the economy,’ what the Fed really wants to engineer is a soft landing that means that the scale of unemployment increases is kept to the minimum necessary to achieve a drop in inflation back to target. Hence the importance of NFP reports.”

“Given the momentum in the market that favors the sale of dollars, we suspect that a weaker-than-expected jobs report would trigger a bigger market reaction than a stronger-than-expected report.”

“We think the market would need fewer surprises to price in less FOMC tightening than more tightening. Therefore, the bias is towards a weaker dollar today and a stronger jobs report would have to be impressively stronger to see the US dollar advance notably.”