There are quite a few important economic data releases from the US during this week on the forex economic calendar. They start with the Federal Funds Rate decision on Wednesday evening European time which will be released together with the FOMC statement, then FED chairman Jerome Powell is expected to follow in 30 minutes. On Friday, the employment report is scheduled at around midday which includes the Average Hourly Earnings, Non-Farm Employment Change and the Unemployment Rate reports. Later in the afternoon we have the ISM Manufacturing PMI report. Her we will explain the most important of those economic events and how they might affect the US Dollar.
Thursday January 30
19:00 GMT – Federal Funds Rate
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The Federal Reserve (FED) interest rate decision which takes place eight times a year is scheduled on January 30. The FED increased interest rates by 25 basis points, from 2.25% previously, to 2.50% in their last meeting in December which was the ninth time in a little more than two years. This time, it is widely anticipated and almost 100% guaranteed that the FED will keep interest rates unchanged at 2.50%. Therefore, we don’t expect any impact on the US Dollar from this event.
19:00 GMT – FOMC Statement
The FOMC Statement gets released instantly with the interest rate decision. It is the primary tool the FOMC uses to communicate with investors about monetary policy. Since interest rates are widely expected to remain unchanged, the focus will be turned immediately on the Statement. It will be of particular interest for forex traders to look for small changes on the comments and read between the lines.
On the last meeting, most FOMC members seemed less optimistic going forward with rate hikes, as the FED has done in the last two years. This led traders and analysts to believe that the FED will slow down the pace of rate hikes this year or even stop it at some point. A Bloomberg report showed economists forecast two more rate hikes this year, which means half he pace of the last two years. That formed a sentiment in the market which sent the US Dollar lower that day. This time, traders must watch changes in the language and whether they lean on the hawkish or the dovish side compared to the previous statement, because it will turn the USD bullish or bearish, depending on the outcome.
19:30 GMT – FOMC Press Conference
The press conference which lasts about an hour follows the release of the FOMC statement and the interest rate decision and it’s divided in two parts. In the first part, a prepared statement is read and then the FED Chairman Jerome Powell will take questions. Powell confirmed it himself in the December conference that the global economy has weakened considerably in the recent several months and that is starting to give signs of weakness to the US economy, which might increase this year.
Powell also mentioned that the FED might not keep up the pace of rate hikes that we have seen in the last two years. That convinced markets even more that this year we are going to see less interest rate increases. As of now, only two rate hikes are priced in for 2019, one in June and the other in December. Tomorrow, Jerome Powell will receive questions in order to shed more light on the pace of rate hikes this year even if they try to skip this issue. If Powell implies that the FED will indeed slow down to two or even less rate hikes this year, the market will see it as a dovish sign, hence bearish for the USD. It will also be of interest for traders to see what’s the outlook of the FED for the economy as of now, after having seen some signs of weakness indeed, such as the decline in the consumer sentiment on Tuesday to the lowest in more than a year.
Friday January 31
13:30 GMT – Non-Farm Employment Change
The non-farm employment change report gets released on the first Friday after the month ends together with the unemployment report. Non-farm employment had missed expectations in November, increasing by only 155k against 198k expected. This is a relatively low number compared to previous months, but the report for December showed a surprising 312k jump in new jobs outside of the farming sector. That was almost twice of the number expected.
The previous figures wee revised higher as well to 176k and on top of that, the average hourly earnings released at the same time showed a 0.4% jump in December. The impact accumulated and the US Dollar ended up higher that day. Although, today the pace of growth of new jobs outside of the farming sector is expected to fall back to 165k for January. Although, we don’t think this will have any meaningful impact on the USD.
13:30 GMT – Unemployment Rate
The unemployment rate will also be released together with the non-farm employment change and the average hourly earnings figures. The unemployment rate jumped unexpectedly to 3.9% on December’s report and that gave the USD a kick lower initially. Although, that didn’t last much and the USD reversed higher mainly due to impressive figures from the earnings and he non-farm employment reports.
But, that was partly due to the fact that the participation rate had also increased by two points that same month. The higher participation rate plays a big role on the unemployment rate which explains the bullish reversal in the USD that day. The unemployment rate is expected to tick lower to 3.8% this time, which is the number for January. That would be a positive thing for the US Dollar but, it should be seen in relation to the participation rate as well. If the participation rate remains unchanged or increases and unemployment declines, then the positive impact on the USD is expected to be bigger.