Market Review – Fundamental Perspective 5 January 2018

The official US jobs data for December will be reported on Friday morning by the US Department of Labor, and consensus expectations are pointing to a likely continuation of the strong job creation that prevailed through much of last year (September weather disruptions notwithstanding). Around 190,000 non-farm jobs are expected to have been added to the US economy in December following a better-than-expected showing of 228,000 jobs added in November. Given Thursday's strong ADP jobs beat for December, Friday's official non-farm payrolls could potentially surpass expectations once again.
In the run-up to Friday's jobs release, the US dollar has mostly been selling off sharply since mid-December, due in part to doubts as to whether the US Federal Reserve can keep up with its most recent outlook for three interest rate hikes in 2018, given ongoing concerns over lagging inflation.

The beginning of the new year this week continued to see overall weakness for the dollar, even despite Wednesday's hawkish-leaning release of minutes from December's FOMC meeting, in which the Fed raised its benchmark federal funds rate by 25 basis points. The minutes revealed optimistic assessments of the US economy and higher projections for GDP stemming from the anticipated effects of the new US tax policy. With respect to jobs, Fed officials were nearly unanimous in attributing the rate hike in part to continued labor market strength.
The question remains, however, as to whether the struggling US dollar will be able to make a meaningful rebound anytime soon, given a Fed that remains mostly hawkish-leaning and an outlook for continued strength in US economic growth and jobs. Friday's employment data outcome should provide some clues as to potential dollar direction and sentiment further into 2018. As there is a good possibility that the NFP jobs data could beat expectations once again, the resulting moves in the US dollar should be indicative of prevailing dollar sentiment as the new year kicks off.