The US GDP data failed to push the dollar index higher but the Fed meeting did the job. The question is what can the US NFP data do for the dollar index and the US equity markets.
Today is the most important day for traders who would be looking at the U.S. Non-Farm payroll data. This particular number has the ability to dictate the market action for the rest of the month. This is why it is considered as the mother of all the data. Last week, we saw the US GDP number thrashing the forecast: the actual reading was 3.2 percent while the forecast was 2.2 percent. Ever since speculators have been fueling the markets with rumors that the Fed may no longer hold it's dovish stance towards the monetary policy.
Their argument seems even more plausible if you start to factor in the latest U.S. consumer confidence data which was much stronger than the forecast. The reading came in at 129.2 beating the forecast of 126.2. But, let's put things in perspective: the price formed a high of 98.33 on April 26th, and by April 30th it declined nearly 0.90 percent.
So, despite those rumors and strong data, the dollar index actually lost its value. It was the FOMC press conference on Wednesday which brought the life back for the dollar index. The Fed made a technical adjustment to Interest On Excess Reserves (IOER). The market was already expecting this from the Fed so the upward move in the dollar index wasn’t because of this adjustment.
The Fed maintained its “patient” guidance and acknowledged weakness in consumer spending and business investment, but marked this as transitory. This particular move pushed the dollar index higher. The take away from the Fed meeting was that the next move (with respect to the interest rate) could be upward or downward.
Overall, the Fed still characterize the US growth as strong and it is in this essence that the upcoming U.S. NFP is of critical importance. The expectation is for the unemployment rate to stay steady at 3.8 percent, the average hourly earnings m/m to improve to 0.3 percent from 0.1 percent and the non-farm employment change to come in at 181K. But, before we focus more on these numbers, let's look for the clues from the existing important data released this week.
The ISM manufacturing index usually gives us a good inside about the US nonfarm payroll number. The reading for the month of April disappointed, it fell to the lowest level since October 2015 but remained in the expansion territory. The decline was pretty much broad-based, It includes, production, new export orders, and new orders. This suggests that factory-sector has cooled off considerably because of the inventory overhang.