Today, the markets will finally see US labor market data again. The foreign exchange market will certainly look closely at the numbers and all the details to find clues about the state of the US labor market and its implications for the Fed, notes Volkmar Bauer, foreign exchange market analyst at Commerzbank.
Labor report’s impact is limited amid Fed’s ideological divide
“However, I doubt the importance of the labor market report, and not just because the data was collected some time ago. Certainly, given that the October labor market report has been canceled and the November report will be published a week later, one might think that September has gained importance. The minutes of the October Fed meeting, however, seem to tell a different story. It seems to me that there are two camps increasingly forming within the Fed, who are becoming increasingly hostile toward each other and whose differing opinions seem to be based more on ideology. This means that simple indicators of whether the labor market It may have slowed somewhat more than previously thought in September or actually been more aggressive, probably won’t change anyone’s mind about the FOMC.
“Shortly before the Fed’s decision, we will at least receive the October JOLTS report. Although I’m not sure how data was collected for this report during the lockdown, while it was not possible for the labor market report. But let’s leave that aside for now. At least this will be another report with relatively recent data that may be more likely to change the opinions of Fed members. After all, we have been saying for some time that rates like the unemployment rate and quit rate better reflect the current situation in the labor market than the number of new jobs created, Because the rates take into account the supply side of the labor market, it is this side that is currently exposed to more uncertainty.
“But in short: the only thing that will really determine a new direction for the US dollar in the coming weeks will likely be the Fed meeting and how the decision eventually reached there is justified. I am not sure how much the upcoming data will really influence this decision. However, this will not prevent the market from filtering out any potential information from all the upcoming data. This makes the FX market vulnerable to volatility in the coming weeks.”
