Forex - US nonfarm payrolls, 13:30 (GMT), Friday February 2nd.

Nonfarm payrolls increased by 148,000 in December, well short of expectations for 190,000. But earlier this week the private ADP report beat expectations, potentially setting the stage for more robust employment growth in January. Private payrolls were up 234,000 against 185,000 expected. ADP numbers are not always the best guide, but these do point to some firmness.

There will also be a focus on wages and their implication on inflation. So far wage growth has remain locked at 2.5% on annual basis for several months.

Fed policymakers said the labour market has continued to strengthen since its meeting in December and this has left markets positioning for the first rate hike this year to take place as early as March.

So really what we're looking for here is a strong set of payrolls to justify the Fed's hope and market expectations for a March hike. In itself a bad miss can be ignored, as we have seen lots in the past, as the three-month and six-month averages are far more pertinent. But a miss this time would go against the Fed's more upbeat message and this could leave markets in a quandary about exactly where the Fed is heading.

Two things to note here. One, the headline NFP number is not as important as it used to be – jobs growth matters less when the market is already at near full employment. Wages are probably more important.

Secondly, expectations for Fed rate hikes are not having the impact on the US dollar that they did. For several years post crisis, the policy-sensitive two-year yield marched in lockstep with the dollar. Lately we have seen rising US bond yields in tandem with a weaker USD. Nevertheless, a strong payrolls number is still on balance a positive for USD, at least in the short term. If we get another undershoot it might just get the dollar bears taking charge again, having apparently run out of energy following the slide through January.


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