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Nonfarm payrolls to make or break rate hike?

Nonfarm payrolls to make or break rate hike?

GBP 
Yesterday’s media reaction to the budget was lukewarm with a row over tax increases for the self-employed negatively impacting market sentiment. GBPUSD closed in the red for a fourth consecutive day, having extended its decline to a fresh seven-week low of 1.2133.

The first major UK economic releases for the week are due this morning. UK manufacturing production, which makes up around 80% of total industrial production, is expected to decline to 0.6% on monthly basis in Jan, against 1.3% growth seen in December. The total industrial production is predicted to turn negative and show a -0.2% decrease in Jan, compared to a 2.1% increase recorded previously. Consumer Inflation Expectations are also expected.

EUR

The markets were all about the European Central Bank (ECB) yesterday as a surprising mix of dovish and hawkish rhetoric from the institution supported the view that the Eurozone economy was improving.

While keeping interest rates and the bond purchasing program unchanged, the ECB President Mario Draghi said that further measures, including rate cuts and increased bond buying, were becoming less likely. Thus, the market sentiment was that the ECB could be heading towards the end of its current programme and easing bias. Ultimately, the single currency rallied across the board after Draghi painted a more upbeat picture of the region’s growth.

USD

US jobless claims continued to demonstrate a strong jobs market in the US despite rising to 242,000 in the latest week, up from 223,000 previously. The market continues to anticipate that a robust Nonfarm Payrolls figure today would all but confirm a Fed rate hike next week. There will be a sharp market reaction if the employment report is much weaker than expected.

ILS

Israel’s current account surplus narrowed by 9.5% last year, but it still equates to 3.9% of gross domestic product. Israel’s persistent current account surpluses and the influx of foreign investment have contributed to the strengthening of the Israeli Shekel (ILS), forcing the Bank of Israel into an increasingly controversial policy of buying foreign currency to weaken ILS.

Omer Moav, professor of economics at Hebrew University, has stated that a solution could be to remove barriers to imports such as tariffs. This would weaken the Shekel by bringing in more Dollars and help exporters as well as lower consumer prices.

Data to watch: 7am German Imports, Exports, Trade Balance, Wholesale Price Index & Current Account. 9.30am UK Consumer Inflation Expectations, Industrial & Manufacturing Production. Trade Balance, Goods Trade Balance & Total Trade Balance. 1.30pm US Nonfarm payrolls, Unemployment Rate, Average Weekly Hours, Average Hourly Earnings, Labour Force Participation Rate. 3pm UK NIESR GDP Estimate. 7pm US Monthly Budget Statement.

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