**FX Today: Markets Eye US Employment Data With Cautious Optimism**
*Original reporting by FXStreet staff. Expanded and rewritten for clarity.*
Global financial markets entered the final trading day of the week with a tone of cautious optimism ahead of the eagerly anticipated US Nonfarm Payrolls (NFP) report. With equity markets steady, the US Dollar retracing from recent highs, and government bond yields backpedaling, investor sentiment reflected hope for a soft landing scenario in the United States economy. This favorable outlook, however, hinges significantly on the labor market data due later on Friday.
In this expanded article, we unpack all the latest market movements and themes reflecting activity in forex pairs, commodities, equities, and monetary policy expectations. We also explore analysts’ projections ahead of the key report and broader macroeconomic implications.
## Overview: Optimism Tempered by Labor Market Uncertainty
Despite the lingering risks of inflation and restrictive central bank policies, investors appear increasingly confident that the US Federal Reserve is close to finishing its rate hike cycle. This sentiment was evident in multiple asset classes, including treasury bonds, equities, and major currency pairs.
Key Highlights:
– The US Dollar Index, which gauges the greenback against a basket of six major currencies, declined slightly from its recent highs, reflecting investor repositioning ahead of the employment report.
– US Treasury yields, particularly the 10-year yield, pulled back to around 4.03 percent, down from midweek highs near 4.10 percent.
– Equity markets remained largely supported, with the S&P 500 and Nasdaq recording modest gains amid risk-on sentiment.
– Gold prices showed renewed strength, rising above $2,050 per ounce as bond yields dipped and dollar strength waned.
– Crude oil markets saw a positive uptick as geopolitical tensions and supply constraints overtook short-term demand concerns.
## Focus on US Employment Data
Investors’ primary focus remains on the upcoming December Nonfarm Payrolls data, due at 13:30 GMT. The US labor market has shown impressive resilience in 2023, defying expectations of a slowdown, but markets have started pricing in moderation in hiring trends as the macroeconomic impact of tighter monetary policy begins to manifest.
Analyst projections for the December jobs report are as follows:
– **Nonfarm Payrolls (Dec)**: Expected at +170,000 jobs (down from the +199,000 posted in November)
– **Unemployment Rate**: Forecast to remain steady at 3.7 percent
– **Average Hourly Earnings**: Expected to rise 0.3 percent month-on-month, translating to a yearly increase of 3.9 percent
Traders are alert to any upside surprises in the wage data, as excessive wage inflation could complicate the Federal Reserve’s disinflation trajectory. Conversely, a weaker NFP read might support bets of a more dovish Fed in the coming months.
## Dollar Markets Await Confirmation for Next Move
The US Dollar’s performance has closely mirrored economic resilience and interest rate expectations in the US. Recently, the greenback has traded in a consolidative range after staging a recovery in late December.
Contributing factors to recent dollar weakness:
– Revised expectations that the Federal Reserve will pause rate hikes in early 2024 and potentially begin rate cuts by mid-year.
– Rebalancing activity by global investors in early January, typically seen as markets reset at the start of a new calendar year.
– A mild risk-on sentiment which favors risk-sensitive currencies like the Aussie and Kiwi over the safe-haven dollar.
At the time of writing:
– The EUR/USD holds above the 1.0950 level, supported by firm Eurozone data and dovish Fed bets.
– The GBP/USD trades near 1.2730 after reclaiming losses earlier in the week, bolstered by better-than-expected UK mortgage approvals and house price data.
– The USD/JPY slipped below 144.00, driven by declining US yields and
Read more on USD/CAD trading.