US Nonfarm Payrolls Next After Powell, the Dollar May Fall Shortly

In his hearing before the Senate Banking Committee on Tuesday, Jerome Powell, who has been nominated for a second term as Fed chairman, surprisingly addressed the need for a faster taper of asset purchases, as transitory inflation is now perceived as something more enduring.

The dollar’s reaction, which hardly profited on the headlines, was even more surprising, but the bulls haven’t fully lost their jitters, as Friday’s US jobs data could present another opportunity for a rebound.

With core PCE inflation showing no signs of abating and the new omicron covid variation suggesting extended supply crunches at the end of the year, the Fed chief telegraphed that the transitory story will likely be dropped out of the policy statement.

He also admitted that during the upcoming policy meeting, the central bank would discuss the possibility of a faster bond tapering, which was originally planned to begin with a $15 billion monthly cut, boosting speculation that the bond tapering phase could end before mid-2022 and interest rates could rise sooner than expected. However, Powell stated that the central bank would maintain a close eye on current conditions and seek confirmation from incoming data releases to put the tightening processes into action.

Nonfarm Payrolls Are Expected To Expand Rapidly

Job growth is predicted to be 550k in November, down from 531k the previous month, with the unemployment rate expected to fall to 4.5 percent from 4.6 percent. At first glance, such figures appear to be a little different from those released in November, giving traders little cause to change their rate forecasts and, as a result, push the dollar higher.

However, if the jobs statistics come in above forecasts, it might be seen as a continuation of October’s comeback, providing another evidence that the Fed may press forward with a bigger reduction in bond purchases this month unless omicron becomes the next global economic burden.

The next employment report, which is due to be announced on Friday, will be the center of attention. Positive statistics may inspire markets to predict three rate hikes next year, rekindling the US dollar’s upward trend. The labor market in the United States is in good shape, according to better-than-expected weekly unemployment claims announced earlier today.