Markets expect the USA unemployment rate to have eased to 3.8% in September. Non-Farm payrolls should have eased to 185,000 from 204,000 in the previous month. Average hourly earnings are expected to have edged down to 2.8% from 2.9% in August. All indicators have been on green in the job market.
Unemployment is at its lowest level since the millennium. Inflation has been moving in the right direction. This goldilocks scenario has allowed the Federal Reserve to hike interest rates eight times over the last three years. According to the latest projections, this cycle would most likely stop in 2020. By then the Fed funds rate would reach around 3.4%. So what will drive exchange rates? The US dollar has had a nice ride since the beginning of the year but has been unable to extend gains despite widening interest rate differential against most of its currency peers. One can argue that the Federal Reserve’s balance sheet unwinding will become the main driver for the buck, but we believe that developments in the job market and inflation will remain key drivers.
