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The upcoming interest rate policy of the Federal Reserve in 2017 is likely to be governed by the labor market data due to be released by the end of today. Looking into 2017, the FOMC is turning more dovish ‘on paper’, which emphasizes the importance of strong labour market performance and continued progress on unemployment and wage growth.
Labour market data have been solid in November, with low initial claims and the Markit PMI employment index pointing to slightly higher job growth. The ADP jobs report was good overall with strong jobs growth of 210,000 in November, but downward revision of 28,000 in October.
"We estimate non-farm payrolls increased by 170,000 in November in line with the recent trend and more or less in line with the consensus of 180,000. We estimate an unchanged unemployment rate at 4.9 percent and that average hourly earnings increased 0.2 percent m/m implying an unchanged wage growth rate of 2.8 percent y/y," Danske Bank commented in its latest research report.
A hot labour market is viewed by several dovish FOMC members as a chance to undo some of the supply-side damage done by the great recession. This should ultimately increase the participation rate, making room for further employment growth. However, the risk is that the economy overheats, which will ultimately force the FOMC to hit the nail.
With the economy gaining momentum now, the employment growth could move a bit higher in the coming months. However, a tighter labour market now should cap jobs growth. The magnitude of employment growth over the coming year depends on the amount of slack left in the labour market.
Meanwhile, the dollar index is trading at 1-week low at 100.84, down 0.19 percent at the time of closing, forming a bearish doji, while at 9:00GMT, the FxWirePro's Hourly Dollar Strength Index remained neutral at -22.66 (a reading above +75 indicates bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
