Testifying at the Senate Banking Committee yesterday, Jerome Powell signaled that the central bank was ready to accelerate the pace of rate hikes, but it was not a rock-solid decision. After his congressional testimony, investors were riveted to the ADP employment report which revealed that the US private sector created way more jobs than expected.
The ADP payrolls processor reported that the US economy added 242K new jobs, excluding farm employment, much more than the consensus of 200K jobs. Besides, the figure for January was upgraded to 119K. In a separate report, the JOLTS job openings report showed that the number of vacancies increased to 10,824 million in January, much stronger than the expected 10,500 million.
The question is why the US dollar did not receive any support from such upbeat data as it should have done.
The US dollar index, which tracks the greenback's dynamic against a basket of major currencies, had a volatile New York session and closed roughly at the opening level. The US stock indices closed mixed yesterday. Yields of US Treasuries traded in a seesaw up and down but closed without significant changes.
From my viewpoint, the situation can be explained by a few reasons. For a start, in his testimony at the Senate Banking Committee, the Fed's leader again evaded clear-cut wording. On the one hand, he didn't affirm that the central banks would go ahead with the cycle of aggressive tightening for sure. On the other hand, he said that the regulator would resort to sharp rate hikes if needed. The market realized that the Federal Reserve was hesitant about further policy moves under current economic conditions. So, uncertain prospects of monetary policy are the major reason why investors are taking a cautious approach. Indeed, for this reason, the US dollar made odd moves on Wednesday despite the upbeat ADP employment data.
All in all, the ongoing developments in financial markets and in the currency market, in particular, create the impression that market participants will hardly give a strong response to the US nonfarm payrolls which are due on Friday. Commonly, official employment data arouses a strong reaction from global investors. This time, the market will give a notable response to the Federal Reserve's policy meeting slated for March 22. Investors are unable to sharp trading sentiment because the US central bank has not agreed on a clear-cut agenda for further rate hikes.
As for the market dynamic today, I suppose that the currency market will treat water. The US dollar rallied on Tuesday and traded in confusion on Wednesday. Today, the greenback might come under pressure. The US currency is likely to give in to temporary weakness if it happens.
Intraday forecast
EUR/USD
The currency pair is trading below 1.0565. The instrument might grow as high as 1.0625 amid improvement in market sentiment worldwide and if technically, the price surpasses 1.0565.
XAU/USD
The trading instrument found support at about 1,808.00. The overall risk-on mood among global investors could encourage a recovery of gold. The instrument might rebound modestly to 1,830.00.
