The big day is approaching and investors are counting down for the Nonfarm payrolls release, meanwhile Chair Janet Yellen and her colleagues continue to hint for a December rate hike.
The greenback appreciated against all major currencies yesterday with dollar index trading at highest levels since early August as Chair Janet Yellen stated that a December lift off is possible and indicated that low unemployment, continued growth and faith in inflation returning back means the economy is ready for tightening monetary policy.
William Dudley, the new FOMC voter couldn’t agree more with Yellen and kept December rate hike live but wanted to see how the data develops in the coming 6 weeks till next Federal Reserve meeting. Even Fed Governor Lael Brainard, who’s considered one of the dovish members changed his tone slightly yesterday by stating that improvement in labor markets has been extremely steady, and sees certain aspects that are encouraging.
The strong language from the Fed members sent market expectations for a rate hike in December above 80% from 50% according to CME’s FedWatch. Economic data also supported, with ADP coming slightly higher than expected at 182,000, but the real bright spot was in October’s ISM non-manufacturing figures which grew at second fastest rate in a decade. What’s more interesting is the employment component of the report, which also printed its second highest number in 10 years.
For the dollar to continue the rally, a solid non-farm payrolls number is required. So far, releases leading to the big event are supportive. However, it’s very important to keep an eye on the wages as it remains the missing component for inflation to go higher.
The Pound will be having a busy day, and expect more volatility in the next few hours as BoE will decide on interest rates, release minutes and quarterly inflation report. Although nothing is expected to change in monetary policy, recent data from the U.K. has shown major improvement since last meeting, with unemployment unexpectedly dropping to 5.4%, wages rising by 3%, retail sales sky rocketing and the according to PMI figures the construction sector is in a good health. If the past data is enough to get another member join BoE’s Ian McCafferty to vote for immediate rate hike, this would be a strong signal for GBP appreciation, especially against the EUR and JPY.
The yellow metal is trying to hold above $1,100 an ounce after dropping 6.5% in the past 14 trading days. So far, there is no supporting news for gold prices, and gold traders will be very interested in the outcome of Fridays’ non-farm payrolls to decide whether to take prices even lower as a robust figure could lead the precious metal to challenge the 1,000 physiological level in the near term. On the other side, assets in SPDR Gold Trust, the most owned gold backed ETF fell to 680.11 tonnes on Wednesday indicating that investors are getting rid of the safe haven investment tool ahead on Friday’s release.