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Fed rate cut 'more likely than not' amid high uncertainty around NFP report

The dollar gave back some of its gains on Tuesday, having posted advances against most of its major peers on Monday. Investors remain unsure as to whether the Fed will lower interest rates again at its 18th December meeting, but recent communications from FOMC members perhaps suggest that a cut is more likely than not.

Voting member Christopher Waller said earlier in the week that he still supported a December cut, as this would still allow ample room to slow the pace of rate reductions at a later date. Waller is just one voting member, however, and until markets are confident that this is a view shared by the majority of the committee, one-sided bets against the greenback could be limited.

The rest of the week will see the release of a handful of important economic data points.

Today’s revised PMI figures are not expected to rock the boat, but Friday’s nonfarm payrolls report almost certainly will. There is a high degree of uncertainty surrounding the data, not least as the October report appeared to be heavily impacted by hurricanes in the south.

Consensus is for an NFP print around the 200k level, but a downside surprise akin to last month’s report may be enough to seal the deal for a December Fed rate cut.

Author

Matthew Ryan, CFA

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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