Week Ahead: US Payrolls, Powell testimony, Central Banks Decisions
This week, a plethora of events are expected to take place and some of which can have a substantial impact on the markets. From US Payrolls to Fed Chair Jerome Powell’s testimony, and central banks’ decisions, here’s what you need to know about this week ahead:
Fed Chair Testifies
This week, investors and traders may be waiting with bated breath for Fed Chair, Powell’s, upcoming testimony whereby he is expected to appear before the Senate and the House of Representatives on Tuesday and Wednesday respectively.
At present, the majority of market participants seem to believe that Powell will announce further rate hikes to combat the ailing economy. This hawkishness, if materializes, will be a continuation of the Fed’s ongoing saga of hawkish rate hikes which started in 2022.
Furthermore, it is not a secret that Powell’s commentary is highly expected among market watchers, traders, and investors alike as he can reveal substantial information about the world’s biggest economy which can have a direct impact on the markets as a whole. Accordingly, on Monday morning the US dollar traded lower as investors look forward to the upcoming testimony among other factors. As a result, the US Dollar Index (DX), which measures the performance of the US dollar against a basket of currencies fell by 0.18% on Monday morning as of the time of the writing.
Many may be waiting for clues regarding any further interest rate hikes as inflation still seems to be a recurring motif in the US. Moreover, this testimony’s importance is probably loftier due to the fact that on Friday the Fed revealed that it intends to stick to its hawkishness by hiking interest rates further.
Nonetheless, whether or not the Fed will really go back to its hawkishness is yet to be determined. Traders will have to patiently wait for the central bank’s upcoming meetings on March 21-22 to see what decisions will be made.
US Economy Status Update: US Nonfarm Payrolls to be Released
In addition to Powell’s upcoming speech, this week February’s US Nonfarm Payrolls (NFPs) report is expected to be released on Friday. The impending report may also stir the markets, and to better understand how it can do so, it is crucial to cover its basics.
The US Nonfarm Payrolls, otherwise abbreviated as NFPs, is a statistical measure released by the US Department of Labor on a monthly basis. In addition to measuring US unemployment rates, NFPs measure the number of people employed in the US workforce in all sectors except agriculture, non-profits, private households, and local governments. This, therefore, can be valuable to traders and market participants since it can reveal a lot about the state of the US economy. In that sense, above-expected NFPs readings are deemed positive for the US economy and the USD, while readings below expectations are deemed negative.
As for market expectations for the upcoming report which will reflect February’s employment rates, an addition of 200,000 new jobs and an unemployment rate of 3.4% are expected to be reached in February. Assuming these predictions hold true, February’s employment rate will be below January's employment growth of 517,000. (Source:Yahoo Finance)
From Japan to Australia: Central Banks Make their Decisions
The Federal Reserve is not the only central bank that may be under investors' and traders' radar this week as the Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA) are expected to hold substantial monetary meetings.
On Tuesday, the RBA is expected to reveal its interest rate decision following weaker-than-expected data in Australia showing weaker economic growth in the 4th quarter and higher inflation in January. Subsequently, market watchers seem to believe that rates will keep hiking by another 25 basis points in response to Australia’s less-than-stellar economic outlook. In addition, as many seem to predict more interest rate hikes, some economists believe that if that materializes, then Australia could suffer a possible recession. Adding to these speculations, RBA officials revealed in their February meeting that the RBA will probably increase rates further in an attempt to heal the economy.
Nonetheless, this comes against the backdrop of lower CPI figures in January compared to December of last year and higher wages in the fourth quarter of last year. Therefore, the uncertainty surrounding Australia’s economy looms larger than ever and traders may need to wait and see how this affects the markets in general, and the Forex market in particular.
As for Japan, it seems that the Japanese economy is stuck between high inflation, on the one hand, and higher wages on the other hand with both figures hitting the 4% par in January. Therefore, BoJ officials will have to decide whether they want to follow a tightening path or shift to a different approach amidst these turbulent economic conditions. For the time being, many BoJ members including Ueda, the BoJ's upcoming governor, expect that Japan’s current inflationary heat will likely abate sooner or later.
With that being said, it is important to note that the BoJ’s upcoming monetary policy meeting on Friday is actually the last meeting for its current governor Koruda before his successor Ueda takes office. Therefore, some believe that any substantial decisions may be left to Ueda. However, whether or not crucial decisions will be made or revealed will be determined by the weekend.
The BoJ’s meeting can be of utmost importance to the markets, in general, and the Forex market in particular. This is because the BoJ’s decision to remain idle can result in the weakening of the Japanese yen which, in turn, can also harm the USD/JPY (USDJPY) which is currently trading downward by 0.12% as of the time of the writing.
All in all, this week ahead is certainly eventful as the aforementioned events can have a direct impact on the market, traders may want to keep an eye out for each of them to see how these can affect their trading.