USD Into NFP: Unjustified Weakness
Preview: US: Nonfarm Productivity
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The recent leg in the dollar depreciation looks little justified, in our view. Even though the probability of a June hike has decreased in the past few weeks, the latest FOMC statement did not signal a more dovish stance than currently priced in. In fact, the board left the door open for June, while the market assigns only a 20% probability of a hike. Therefore, USD downside should be limited as we approach the crucial NFP report on Friday and ISM figures for April.
We forecast nonfarm payroll growth of 250k. Within this, we look for private payroll growth of 240k and net government hiring of 10k. For non-manufacturing ISM (Wednesday), we expect the index to edge up to 55.0 in April, from 54.5 in March. Business activity rebounded last month; however, the employment index remains soft at 50.3. In line with our outlook for robust April jobs gains, we expect a higher reading on the employment component to lead the headline index up about half a point this month.
Finally, several FOMC members are speaking during the week. Williams (Tuesday) will be the most important, in our view, as we look for some insight into the balance of views at the April meeting and whether he maintains his hawkish leanings. Lockhart (Tuesday) will speak on the economic outlook and monetary policy. In a speech before the April meeting, Lockhart, amid a cautious tone, noted that he no longer supported an April rate hike. We will look to his speech to identify any tilt in his views as we move toward the June meeting
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