Happy Jobs Friday: BoE Holds Rates, US Dollar Dips, and Anticipation Builds for US Jobs Data
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Happy Jobs Friday!
By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
The Bank of England (BoE) kept its rates unchanged yesterday but opened the door to rate cuts mentioning 'good news on inflation'. Cable rebounded despite a dovish takeaway from the MPC meeting as the US dollar fell sharply despite better-than-expected ISM manufacturing survey. In the euro area, inflation fell slower than expected in January. Combined with a softer US dollar, the EURUSD jumped from 1.0780, a few pips above the 100-DMA. The Swedish Riksbank also held rates steady yesterday and gave the happy news that a rate cut will be coming in H1.
The year starts with the sweet smell of the upcoming interest rate cuts, like a freshly baked apple pie ready to come out of oven. We can't wait to have a taste of it before the commercial real estate dives into darkness with more than half of commercial loans in the US due to come to maturity by the end of 2025 – and these loans make up to almost 30% of the small banks' assets. So, let's hope that the Fed won't burn the pie.
Happy US jobs day!
The US is expected to have added less than 200K jobs this January, for around the same pay growth of 4.1% and unemployment rate is seen ticking slightly higher to 3.8%. A reasonably weak number should revive the Federal Reserve (Fed) doves, while a strong number should melt the March rate cut expectations. The probability of a March hike fell to 35% after the Fed said that March was probably too early to cut rates – while this probability was around 80% at the start of the year. Everyone is focused on the May meeting now, with more than 90% probability priced in for the first Fed cut.
The rational with the jobs data is, the softer the data, the sooner the Fed could start cutting rates. And with the number of layoff news on the newswire, it looks safe to bet that today's NFP will be as soft as Wednesday's ADP report. BUT note that Fed Chair Jerome Powell said that they sense that the US economy is accelerating based on anecdotes and chats with private sector. And that's not in line with the layoff news that crowd the headlines. A reasonably soft jobs data is good for the Fed doves and should further weigh on the US dollar, a stronger than expected figure – if not abnormally strong - should not impact the May cut expectations and keep the dollar bulls contained.
