Payrolls Day Triggers Dollar Volatility Ahead of Fed Decision
Today's non-farm payrolls release will be closely watched by markets as it could lead to an outsized reaction, according to Kevin Warsh's ambiguous communication at the July FOMC. The market is expecting a payroll increase of 80k, but ING's call is slightly lower at 70k, which could result in a small dollar drop.
The unemployment rate is expected to tick higher to 4.3%, driven by a higher participation rate. This scenario could lead to a slightly softer dollar, but it should not drastically change markets' conviction levels about the September FOMC.
ING's macro team believes that the Fed will stay on hold this year, leading to USD weakness in the next couple of months. However, they see a greater chance that next week's CPI and August data will deliver a clearer dovish narrative, taking the dollar more sustainably lower.