Payrolls growth to slow in February

[MongiIG]

Recent months have seen a slowdown in the rate of US jobs growth, but the February number is at least expected to be accompanied by a drop in the unemployment rate below 3.9%.

Source: Bloomberg

 Chris Beauchamp | Chief Market Analyst, London | Publication date: Tuesday 01 March 2022 

What are markets expecting for the NFP announcement?

After last month’s surprisingly strong non-farm payrolls (NFP) of 467,000, investors expect job growth of 438,000 for the month of February. This is still a good number, but would be another month of a declining trend – payrolls hit a high of 677,000 in October, but have weakened each month subsequently.

However, the unemployment rate is expected to tick down to 3.9%, reversing the slight increase of January and returning to the improving situation that has prevailed since June 2021. Hourly wages are forecast to rise 0.5% on the month and 5.8% over the year.

What might this mean for US monetary policy?

In the past few weeks, markets have focused their attention on what the Federal Reserve (Fed) might do at its next meeting. This takes place in mid-March, and is expected to see a rate hike.

While a move to higher rates is all but guaranteed, as the Federal Open Market Committee (FOMC )looks to shift away from the era of emergency monetary policy, the question is whether the committee will raise by 25 basis points or 50. Given the broader geopolitical situation, the latter course may seem too dramatic for the first move, but oil prices continue to rise, and with agricultural commodities on the up as well, Fed chair, Jerome Powell and his team will have to think about whether a greater pace of tightening is required.

US dollar outlook

A steady rally in the greenback since May has seen the dollar gain over 8%. Overall this seems set to continue, and with a recent string of higher lows and higher highs being printed the buyers remain in charge for the time being.

Having rallied from the 100-day simple moving average (SMA) in early February, the price has moved back to the late January highs above 97, and has even managed to push briefly to 97.60, its highest level since the summer of 2020.

More broadly, expectations of further Fed tightening support the idea that the dollar will continue to gain, and it will take a reversal below the recent higher lows of 95.60 and 94.11 to suggest that the sellers have gained the upper hand.

Source: ProRealTime