Outlook: The idea that the tightening cycle is about is end arises from some marginal US data and the Reserve Bank of Australia pulling in its horns a little. These set off a storm of wild optimism that is 99% wishful thinking, including the idea that the pound deserves a second chance and a level from pre-crisis days (1.1496 at the high). Sterling has now fallen back close to 1.1370, just as the euro has fallen back from near-parity to as low as 9811.

It’s risky to say so, but as the US yield starts to recover, so does the dollar. As we so often complain about, the causal relationship is sometimes a hard correlation and sometimes missing in action altogether–but it’s always there, whether upfront or in the background.

The drop in job openings yesterday is hardly sufficient to push the Fed toward lesser or slower rate hikes. It’s premature to imagine what size and combination of data it will take to achieve that end, and even if every single indicator is on the downside, the Fed will still be waiting for the core PCE to dip to an acceptable level.

Fed chief Powell has admitted the labor market is influential in the Fed’s decision-making, but tricky. To propose the Fed will follow the RBA is silly. Yesterday Fed Daly said something unusual–the usual same-old, same-old that high inflation “will require that we follow through on our commitments to bring inflation down, which does mean further rate hikes and holding those restrictive policies in place until we are truly done with bringing inflation back to target.” But then she added “I really see us being able to slow the economy, slow growth, slow the labor market. Yes, there will be an increase in unemployment, but I think the 4.5% range is the right range.”

We assume she is referring to the year-end Fed funds rate. The pending pivot idea is also disrespected in the Fed funds futures, where the expectation of 75 bp at the Nov meeting remains nicely above 75%. Most sources persist in seeing the year-end rate at 4.50-4.75%.

Today we get the ADP private sector jobs report, the trade deficit, and the S&P and ISM service sector indices. ADP and the services PMI’s can be drivers. The services PMI is expected at 56.0 from 56.9 in August, which was the highest since April. Unless it’s a dud, it may offset the weaker manufacturing PMI. As for the ADP private sector job change, ADP claims the re-working of its model is accompanied by the warning that it’s not trying to mirror nonfarm payrolls (so please stop doing that). Frankly, nobody believes ADP,

The ADP forecast is jobs up 200,000 from 132,000 in August. For Friday’s nonfarm payrolls, the consensus calls for a gain of 263,000 vs. 315,000 in August. The unemployment rate will be steady at 3.7% and average hourly earnings gain will fall a little to 5.0% y/y.

There is nothing here to suggest the recession is just around the next corner and the Fed will chicken out. That doesn’t mean the dollar sellers and equity index buyers are a small minority, but it does suggest they are delusional. Remember they did something similar last summer.

And let’s apply the same principle–nothing has really changed–to sterling in particular. PM Truss is speaking to the Tory party and while we await a full report, it looks like the Kwarteng retraction of the high-earner tax cut was the anomaly and Truss is not actually retreating on any of the Reagan/Thatcher supply side ideas. In short, this is going to come back to bite the Tories on the backside, even without a financial sector problem, and that includes biting the pound.

Tidbit: Presidents Xi and Biden meet next month for G20 in Indonesia. Henry Kissinger, speaking at the Asia Society, says Xi may decide to distance himself from pariah Russia lest disgust and isolationism rub off on him–forbidden chips and tariffs notwithstanding.


This is an excerpt from “The Rockefeller Morning Briefing,” which is far larger (about 10 pages). The Briefing has been published every day for over 25 years and represents experienced analysis and insight. The report offers deep background and is not intended to guide FX trading. Rockefeller produces other reports (in spot and futures) for trading purposes.

To get a two-week trial of the full reports plus traders advice for only $3.95. Click here!

This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD falls below 1.0500 after US NFP data

EUR/USD falls below 1.0500 after US NFP data

EUR/USD dropped below 1.0450 but managed to stage a modest rebound. The US Dollar preserves its strength against its rivals and doesn't allow the pair to gain traction after the data from the US showed that Nonfarm Payrolls rose by 263,000 in November.

EUR/USD News

GBP/USD turns south on upbeat US jobs report, trades below 1.2200

GBP/USD turns south on upbeat US jobs report, trades below 1.2200

GBP/USD lost nearly 100 pips with the immediate reaction to the upbeat November jobs report from the US and broke below 1.2200. The US Dollar Index clings to strong daily gains above 105.00 after the data showed that Nonfarm Payrolls rose by 263,000.

GBPUSD News

Gold retreats below $1,790 as US yields surge on US NFP

Gold retreats below $1,790 as US yields surge on US NFP

Gold price turned south and dropped below $1,790 in the early American session. The benchmark 10-year US Treasury bond yield is up more than 2% on the day near 3.6% after the bigger-than-expected November job growth, weighing heavily on XAU/USD.

Gold News

FTX exchange collapse, loss of $3.1 billion could have been avoided on one condition

FTX exchange collapse, loss of $3.1 billion could have been avoided on one condition

FTX exchange, founded by Samuel Bankman-Fried (SBF), has consistently made headlines over the past month for its liquidity crisis and triggering a collapse in the crypto ecosystem.

Read more

AMC advances more than 3% in premarket day after being halted

AMC advances more than 3% in premarket day after being halted

AMC stock is up 3.4% in Friday's premarket just a day after authorities halted trading due to unusual volatility. Thursday saw options volume three times higher than the 20-day average.

Read more

Majors

Cryptocurrencies

Signatures