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Unemployment Tick Up, Dollar Down: Markets Brace for NFP Bombshell

dollar US Jobs data

BoE holds rates steady, and GBP rebounds. US unemployment claims rise, dollar down ahead of key NFP. Get the outlook for currencies and commodities!

In a widely anticipated move, the Bank of England (BoE) maintained its official bank rate at 5.25% for the fourth consecutive meeting, signaling a commitment to a restrictive monetary policy. The decision came as policymakers acknowledged a more balanced outlook for inflation risks, emphasizing the need for sustained restrictive measures to bring inflation back to the 2% target in the medium term. Notably, two policymakers advocated for a 25 basis points rate hike, while one member preferred a reduction of 25 basis points.

BoE Governor Andrew Bailey echoed a similar sentiment during the press conference, emphasizing that although inflation had dropped from 10% YoY to 4% YoY, the central bank was not yet ready to lower interest rates. The British Pound reacted positively, rebounding from 1.2630 to 1.2750 by the end of the US session.

Unemployment Tick Up, Dollar Down: Markets Brace for NFP Bombshell

US Unemployment Claims Rise, Dollar Index Falls

The US experienced a second consecutive weekly surge in unemployment claims. The latest figures reached 224k, exceeding the estimated 213k and the previous week’s 215k. Consequently, apprehensions arose regarding a potential weakening in the US labor market. This, in turn, led to a notable decline in the dollar index (DXY), dropping from 103.60 to 103.00.

Impact on the Asia Session

The Dollar Index (DXY) appears under pressure. Analysts expect subdued activity until the release of highly anticipated non-farm payrolls (NFPs) during the US session. They anticipate significant volatility in currency markets during US trading hours.

Non-Farm Payrolls and Unemployment Rate in Focus

Key news events include the release of Non-Farm Payrolls (NFPs) and the Unemployment Rate at 1:30 pm GMT. December’s NFPs exceeded market expectations, reporting job gains 216k, though November figures were revised lower. This week’s ADP employment report indicated a slowing hiring trend, which could affect the upcoming NFPs.

Analysts expect the unemployment rate to increase from 3.7% to 3.8%. A reading lower than the estimated 187k for January could exert significant selling pressure on the dollar during the US session.

Global Currency and Commodity Outlook

Gold (XAU): The outlook for gold is medium bullish. Prices could increase if NFPs disappoint and the dollar faces selling pressure.

Australian Dollar (AUD): Displaying a medium bullish bias, analysts anticipate the Aussie staying elevated in response to higher-than-expected unemployment claims in the US.

Kiwi Dollar (NZD): The New Zealand Dollar is also poised to stay elevated, showing a medium bullish bias, driven by its strong performance following higher-than-expected US unemployment claims.

Japanese Yen (JPY): Recent inflows causing a drop in USD/JPY are poised to maintain a medium bearish bias for the JPY.

Euro (EUR): The Euro outlook is medium bullish, supported by higher-than-expected inflation in the Eurozone and increased demand following US unemployment claims.

Swiss Franc (CHF): Consequently, analysts anticipate a medium bearish bias for the Swiss Franc. This expectation arises as they foresee overhead pressures triggering a potential slide in USD/CHF.

British Pound (GBP): Following the issuance of a relatively hawkish statement, analysts anticipate that the Pound will sustain its elevated position, maintaining a medium bullish bias.

Canadian Dollar (CAD): The Canadian Dollar is exhibiting a medium bearish bias, with analysts anticipating that overhead pressures will potentially lead to a slide in USD/CAD.

Oil: Crude oil faces a medium bearish bias, influenced by reports of a potential ceasefire in Gaza. Amid geopolitical tensions and economic concerns in China, prices have sharply declined.

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