Will we see Fed rate hike in 2016 post NFP? USD analysis


Following July’s NFP report of 255k market have once again repriced chances for Fed rate hike in 2016, with USD appreciating across the board. What’s the outlook for the Fed and USD now?

08 August, STO The US added 255,000 jobs in the month of July exceeding expectations by 75,000. This was a second consecutive month of solid job gains following a revised 292,000 addition in June.

USD post NFP

The data was released at the same time as Average Hourly Earnings m/m which also surprised the market with an increase of 0.3%. As a result, the USD gained across the board as employment and earnings continue to be the strongest pillar of the US economy.

Friday’s upbeat data eased market fears about the economic slowdown in the US following a soft advanced Q2 GDP print. At the same time, September Fed rate hike was put back on the table and markets once again repriced the probability of a US rate increase in 2016. Still, the cautious tone of the Fed and additional risks stemming from to the presidential elections make September Fed rate hike a long shot, with markets looking at December hike instead.

Fed rate hike in 2016

No matter the exact date, Fed rate hike expectations come amid easing global police with RBA and BoE cutting rates to 1.5% and 0.25% respectively last week. This only strengthens monetary policy divergence between the Fed and the rest global central banks.

Now the focus falls on Friday, when the USD will face US retail sales and Producer Price Index reports. Market consensus for the data is for 0.4% and 0.1% respectively, far below July’s numbers of 0.6% and 0.5% accordingly. Should US retail sales and PPI surprise the market with readings replicating July’s numbers, market participants would likely take the data as a confirmation of Fed rate hike in 2016.

Technical GBPUSD analysis

Despite the fact that the Cable failed to close on Friday bellow the major 1.305 support, scope for GBPUSD has shifted lower as monetary policy divergence between the Fed and BoE strengthened.

Will we see Fed rate hike in 2016 post NFP? USD analysis GBPUSD H1, Technical GBPUSD analysis

However, some correction from the major level is likely and broken 1.310 level would open room for a rise towards 1.317. At that point, risk/reward would favour selling GBPUSD towards a psychological 1.300 level and then to 1.288.

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