US Dollar Mixed Ahead of Jobs Report

The US dollar starts the week on a mixed note ahead of the November employment report. USD/JPY pair is trading at a new corrective low, while EUR/USD continues to lick its wounds after a torrid session on Friday, ING FX analyst Chris Turner said in a note.

Federal Reserve officials are in their ‘quiet period’ this week ahead of the next two-day Federal Open Market Committee meeting Dec. 12-13.

Fed Chair Jerome Powell said Friday that the FOMC would continue to act “carefully” meeting by meeting, balancing the risks of under-tightening and over-tightening, but added that it is “premature” to assume that policy is already restrictive enough or that the discussion of rate cuts should begin.

Currently, the CME FedWatch Tool shows a 97.5% chance of being priced in by markets of no change to the current 5.25% to 5.50% federal funds target range at the December meeting, with a 2.5% chance of a 25 basis point rate increase to 5.50% to 5.75%.

However, markets are also pricing in a 59.3% chance of rate cuts by the March 19-20 meeting. A quick summary of foreign exchange activity heading into Monday showed that USDEUR fell to 1.0869 from 1.0883 at the Friday US close and 1.0893 at the same time Friday morning.

EU investor confidence improved in the December reading but indicated significant pessimism, data released overnight showed. European Central Bank President Christine Lagarde is set to speak later today. The next ECB policy meeting is scheduled for Dec. 14.

GBPUSD fell to 1.2679 from 1.2707 at the Friday US close but was still above a level of 1.2649 at the same time Friday morning. There are no UK data on Monday’s schedule. The next Bank of England policy meeting is scheduled for Dec. 14.

USDJPY fell to 146.5721 from 146.7371 at the Friday US close and 148.0771 at the same time Friday morning. There were no Japanese data released overnight. The next Bank of Japan policy meeting is scheduled for Dec. 18-19.

USDCAD rose to 1.3530 from 1.3498 at the Friday US close and was little changed from the 1.3531 level at the same time Friday morning. There are no Canadian data on Monday’s schedule. The next Bank of Canada policy meeting is set for Wednesday when no change in rates is expected.

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The dollar turned a little higher on Friday – largely led by the drop in European currencies after investors latched onto some dovish comments from ECB officials.

Also supporting the dollar later in the day, however, were comments from Fed Chair, Jay Powell.  He was much more equivocal than his colleague, Christopher Waller, who earlier in the week had signalled that the inflation battle was nearly won, Turner said.

Indeed, Powell’s comments left in the prospects of further rate hikes – which very few in the market believe will materialise. Against this backdrop will the dollar trade on US data this week.

Given the blackout period ahead of the FOMC meeting on December 13th, there will be no Fed speakers this week. Instead, the focus will be on some quite important data.