Dollar Makes a Comeback Due to Impressive NFP report
On Friday, the United States released its Non-Farm Payroll report, which showed the addition of 517,000 jobs in January. This exceeded the expectations of 185,000 new jobs.
Despite a change in the calculation method, the report showed an exceptional increase. The December report was revised to 260,000 jobs and the Unemployment Rate decreased to a record low of 3.4% since 1969. The Average Hourly Earnings of 0.3% month-over-month met expectations and was lower than December’s 0.4% figure.
This has caused stocks to decline, while the US Dollar strengthened and yields rose in anticipation of a quicker rate increase by the Federal Reserve.
FOMC, BoE and ECB Lifted Rates
The FOMC, BoE, and ECB recently held their interest rate decision meetings, where they each increased rates by the expected amount: 25bps by FOMC, 50bps by BoE and ECB. The FOMC indicated that further rate increases may be appropriate but stopped short of committing to another 25bps hike in March. Fed Chairman Powell hinted at the start of a disinflationary process, but was evasive on the possibility of pausing rate hikes.
The BoE changed its statement to suggest that further tightening will be required if there are more price pressures, but downgraded its inflation forecasts to 4% for 2023 and 1.5% for 2024.
The ECB stated its intention to raise rates by another 50bps in March, but acknowledged that they still have to rise significantly. Despite sounding the most hawkish of the three, ECB President Lagarde noted that they have “ground to cover” and “are not done yet.”
Eyes on RBA Rate Decision
The Reserve Bank of Australia will meet on Tuesday to decide on interest rates. Prior to the Q4 inflation statistics, a 15bps rate rise was predicted, bringing the overnight rate to 3.25%. However, Q4 inflation was 7.8% year on year, above the 7.5% year on year forecast and the 7.3% year on year reading in Q3. The December monthly CPI increased by 8.4% year on year, above the projected 7.6% year on year and November’s 7.3% year on year. As a result, markets are now pricing in a 25 basis point rate hike.
The RBA’s Statement on Monetary Policy will be released on Friday, and traders will be watching for any remarks regarding the end of China’s zero-tolerance covid policy and its impact on the Australian economy.