FX markets are mixed as the US Dollar’s descent has steadied in the wake of the US fiscal deal last week. With attention shifting to incoming Federal Reserve rhetoric, the buck has been taking cues from the bond market. Accordingly, with US yields finding a floor today – the 2-year note yield has decreased to 0.307% (-0.4-bps), the 5-year note yield has increased to 1.332% (+0.2-bps), and the 10-year note yield has increased to 2.585% (+0.7-bps) – we note a pause in USD-denominated asset selling.
There is little doubt that the slowed pace of price action in either direction – one would hardly describe the buck’s +0.06% as a major reversal – is directly related to the unusual US economic calendar for the coming week. In fact, the September US labor market report, which was missed on October 4 due to the government shutdown, will be released tomorrow.
Evidence points to NFP growth holding within its recent +160-184K range, as related jobs indicators – Initial Jobless Claims, the ADP employment survey, the ISM Manufacturing and Services reports’ Employment subcomponents – have been suggesting only modest labor growth through the end of the 3Q’13. Little direct impact due to the government shutdown is expected; hiring behavior likely changed only once the government shutdown became official in October, not ahead of time.
Ultimately, tomorrow’s NFP report may be inconsequential to the US Dollar’s fate next week when the Fed meets for its second-to-last policy meeting of the year – and second-to-last under Chairman Ben Bernanke. The Fed cited US fiscal gridlock as a reason to keep QE3 in place in September; and we find that the manifestation of those fears into reality in October will warrant a hold irrespective of tomorrow’s NFP.
USDJPY5-minute Chart: October218, 2013 Intraday
ECONOMIC CALENDAR – UPCOMING NORTH AMERICAN SESSION
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— Written by Christopher Vecchio, Currency Analyst