“Markets still attach a 27% probability to a 50 basis point move at the 31 July meeting, despite recent comments by dovish Fed member James Bullard, who said such a move would be "overdone". The OIS curve also shows that market participants expect one more cut by December and a total of 116bp of easing (almost five cuts) by the end of 2020.”
“Our forecasts are for a 170,000 increase in payrolls (consensus 160k) and 3.3% year-on-year wage growth (consensus is 3.2%). It appears that, unless the report shows a radically lower figure – as happened in May – markets could accept a broadly solid jobs report as confirmation that the July FOMC meeting will result in only 25bp of easing.”
“If today’s numbers materially surprise to the upside, the dollar would jump alongside US Treasury yields as markets may partly scale down expectations for the two additional cuts by end-2019.”
“On the whole, aggressive pricing of forthcoming Fed stimulus suggests that the risks for the dollar are mostly tilted to the upside ahead of the release. Should our NFP forecasts prove correct, we wouldn’t be surprised to see the DXY testing the 100-day MA resistance at 97.10.”
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