Payrolls May Challenge Fed's Hawkish Reset
US labour market data is set to dominate the week ahead, particularly non-farm payrolls for August on Friday. The jobs report will be a test of whether the Fed's hawkish repricing sticks after Fed Chair Kevin Warsh restored some credibility with his speech last Friday.
The USD/JPY breakout has kept the buy-the-dip bias intact, and markets are now basically 50-50 on a September hike. The Fed's focus remains on price stability, but maximum employment data may challenge this stance.
Historically, when the Fed resumes hiking after an extended pause following an easing cycle, it rarely stops at one move. With six of seven instances since 1982 seeing at least one more hike after the first, the incoming data flow is crucial for determining whether the Fed hikes and whether it marks the start of a broader tightening cycle.