(updates throughout)
By Amanda Cooper
LONDON (Reuters) – The dollar swung near two-month lows on Thursday, as traders realized how pivotal US jobs data released in the stock trading holiday could affect Federal Reserve policy, triggering a potential market reaction.
The closely watched US nonfarm payrolls report on Friday, when many markets around the world are closed, will follow disappointing manufacturing and services sector data from the Institute for Supply Management (ISM) and private employment figures on Wednesday.
While a series of sluggish economic data has caused traders to cut their bets on how long US interest rates will need to remain in restricted territory, it has simultaneously rekindled concerns about recessionary risks.
Economists polled by Reuters expect non-farm payrolls to have grown by 239K in March, after February’s gain of 311K. The NFP number has been more likely to present bullish surprises than misses in the past year or two.
For the markets, this could lead to a very volatile session.
Nonfarm payrolls have beaten expectations for 11 months in a row – the longest continuous period of positive surprises in several decades, said Michael Brown, market analyst at TraderX.
“This has to end at some point. It almost ironically ends on Good Friday, when the liquidity is horrendous and no one is trading in the markets,” he said.
“If we get it wrong, I think it’s too early to change anything to policy back in May – they’re not going to overreact to printing a single post. But in terms of trading it all up, or expecting a rational reaction from the market on we’ll get pandemonium no matter what, There will be no volume in the market.”
“routing scan”
The US dollar index, which hit a two-month low this week, thanks in part to lower Treasury yields, held steady at 101.94. TraderX’s Brown said the lack of non-farm payrolls could boost the dollar’s safe-haven appeal.
“It could be said, if we get it wrong, maybe you want to buy the dollar, the yen goes up a little bit. Treasuries will go up really hard because that’s the only thing that’s really open.” Clear guidance “is really the message from the market side of things,” he said.
The Japanese yen, which is also enjoying some support from safe-haven bids, was flat last day at 131.25 per dollar.
Meanwhile, the risk-sensitive Australian and New Zealand dollars fell 0.34% and 0.5%, respectively.
“The key for FX will be that interplay between what the US economy numbers bump into in terms of interest rates and sentiment around Fed policy,” said Ray Attrell, head of foreign exchange strategy at National Australia Bank.
In other currencies, the pound was almost flat on the day at $1.246, while the euro slipped 0.1% to $1.09.
The harsh economic signals reinforced the view that the Fed will reverse course on interest rate increases, with traders hoping to get more insight when St. Louis Fed President James Bullard speaks later on Thursday.
Cleveland Fed President Loretta Mester, a well-known hawk, said in an interview with Bloomberg TV on Wednesday that it’s too early to tell whether the Fed will need to raise the benchmark interest rate at its next policy meeting in early May.
US interest rate futures markets are currently pricing in a roughly equal chance of the Fed leaving interest rates unchanged at its next meeting, with rate cuts priced in as early as July and into the end of the year.
(Reporting by Rocky Swift in Tokyo and Ray-Wei in Singapore; Editing by Edwina Gibbs, Jamie Freed and Christina Fincher)