US labor report – preview and expected market reactions

All eyes are on key economic event of the week, today’s release of US February labor report.

Markets expect fresh direction signals, particularly for the US dollar, which is in a downward trajectory and for gold, which continues to trend higher and hit new historical highs.

US non-farm payrolls are forecasted at 200K in February, average hourly earnings are expected to decline and unemployment to remain unchanged at 3.7%.

The data will show the current condition of the US labor sector, one of key factors contributing to overall picture of the health of the economy, as well as having impact on Fed’s monetary policy decisions in coming months.

The dollar remains under pressure on growing speculations that the central bank would start cutting interest rates soon (June is now seen as start of policy easing), especially after Fed Chair Powell reiterated Fed’s commitment to start cutting rates later this year, if inflation continues to decelerate.

On the other hand, gold benefited from signals of Fed rate cuts, as well as safe-haven buying, due to growing economic and geopolitical uncertainty.

The greenback is likely to come under more pressure on NFP  at or below consensus, although higher numbers may not significantly change the outlook, unless NFP’s strong upside surprise and jump near last month’s unexpected 353K result.