Think the Fed will be done after two more rate hikes? How Friday's jobs report may trigger a major market repricing.
The anticipation surrounding the Federal Reserve's next moves is heightened following unexpectedly strong jobs data, which may prompt a shift in market expectations. The prospect of further rate hikes is back on the table, challenging assumptions that the Fed will pause soon. This dynamic is particularly crucial, as it may alter the trajectory of the USD and influence broader currency trading strategies. Traders are now recalibrating their positions based on how this information could influence future monetary policy.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). Marketwatch's commentary suggests a stronger dollar trajectory, aligning closely with the upper targets observed in the market.
How firms align
Goldman has positioned itself optimistically with a target of 1.12, indicating support for a bullish outlook in response to the employment data. In contrast, BofA's bearish stance at 1.04 suggests some firms are still cautious about the Fed's overall trajectory, opposing the bullish sentiment highlighted by the jobs report.
What the data shows
Recent research indicates a potential adjustment in Fed rate hike probabilities following the jobs report. If employment growth remains robust, there could be upward revisions in growth forecasts, which we've noted in other analyses like /research/jobs-effect-on-fed-policy.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Strong jobs growth may lead the Fed to reconsider its rate path.
- 02Watch for traders recalibrating positions based on this new data.
- 03A shift above 1.12 for EUR/USD could trigger bullish sentiment.
- 04Look for upcoming Fed commentary to confirm or deny job market impact.
Market implications
Next week’s economic calendar will be critical, particularly the upcoming Fed meeting. EUR/USD trading above 1.075 indicates potential upside, while levels below 1.04 could signal market uncertainty regarding rate hikes.
Risks to this view
Should the Fed's upcoming statements contradict current market expectations or indicate a pause, this would invalidate a bullish outlook. Additionally, an unexpected drop in subsequent employment data could further dampen sentiment.
Sentiment by currency
USD+EUR JPY GBPComposite USD score: +0.65
Sources & References
How we cover this story