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US Dollar May Rise if Soft Jobs Data Adds to Gathering Recession Fears

By:Ilya Spivak

Financial markets anxiously await US labor market data, looking for signs of incoming recession after a string of worrying economic reports. Currency and gold markets are eyed to gauge investors’ sentiment.

  • US nonfarm payrolls seen rising 230k in March, jobless rate flat at 3.6%
  • Recently disappointing US economic data has stoked recession worries
  • Spot FX and gold markets are eyed amid Good Friday exchange closures

US job creation may drop to the slowest in over 3 years

A hefty dose of event risk hangs over financial markets. The Good Friday holiday will see most of the world’s major markets shuttered but the US Bureau of Labor Statistics will nevertheless press on with releasing the March edition of its closely watched employment statistics.

Economists expect to see that the economy added 230k jobs last month, a downshift from the 311k recorded in February. If that were realized, it would amount to the slowest pace of job creation since December 2020. The unemployment rate is seen holding steady at 3.6 percent while wage growth slows to 4.3 percent year-on-year.

Data source: Bloomberg

Soft US economic data has markets worried about incoming recession

The report follows a streak of disappointments on the US data front. Job openings unexpectedly slipped below the 10 million mark for the first time in nearly two years. Then, ISM surveys of purchasing managers revealed weaker activity than anticipated in both the manufacturing and services sectors.

The markets seem to suspect that all this amounts to broader recession risk. Fed rate hike odds have not recovered from the shock sustained amid the SVB-led banking crisis at the start of the month. The implied policy path priced into rate futures has lingered in dovish territory even as credit stress has eased.

Data source: Bloomberg

Eyeing spot FX and gold markets’ reaction as exchanges close for Good Friday

Pushing out flagship figures to closed US markets seems unusual. The numbers are set to come out on the first Friday of each month. When this means that a data release falls on a holiday, the schedule is typically amended. Sometimes the report comes through sooner and other times it is delayed.

In this case, it will fall to off-exchange prices to signal how the outcomes are being received by investors. Spot currency and gold markets seem like a go-to place to get a sense of sentiment ahead of the next week’s Wall Street open. With many top markets closed for Easter Monday, that’ll be the first time the news is filtered through decent liquidity.

A soft result that stokes recession fears is likely to bode well for the anti-risk US Dollar and Japanese Yen. It may weigh heaviest on cycle-sensitive alternatives like the Australian Dollar. Bullion prices may struggle for lasting direction if bonds ascend alongside the Greenback, pressuring yields lower.

Ilya Spivak is the Head of Global Macro at tastylive, where he hosts Macro Money every week, Monday-Thursday.

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