Foreign exchange trading reminder: the Federal Reserve may reverse its policy direction, and the dollar is waiting for non-agricultural workers to set the tone

 On the morning of April 6 in Asian markets, the US dollar index was trading around 101.91; the dollar fell slightly against major currencies in quiet trading on Thursday, as investors sorted their positions and pondered how key US non-farm payrolls data to be released when the stock market is closed for the holiday may affect Federal Reserve policy and what kind of market volatility it will lead to.

In early Asian trading on Friday (April 6), Beijing time, the U.S. dollar index was trading around 101.91; the dollar fell slightly against major currencies in quiet trading on Thursday, as investors sorted out positions and pondered how key U.S. non-farm payrolls data to be released when stocks are closed for the holiday might affect Federal Reserve policy and what kind of market volatility it would lead to.

The dollar fell against major currencies in quiet trading on Thursday as investors sorted out positions and pondered how key U.S. jobs data to be released when stocks are closed for the holiday could affect Federal Reserve policy and what kind of market volatility would result.

The closely watched US non-farm payrolls report will be released on Friday, when many markets around the world will be closed for Good Friday. Earlier this week, the Institute for Supply Management (ISM) released disappointing manufacturing and services data, and private employment data on Wednesday was also poor.

The dollar index closed 0.03 percent lower at 101.90 on Thursday, hitting a two-month low earlier this week, in part due to lower Treasury yields.

Thursday's report on U.S. initial jobless claims added to the slowdown narrative, and the government also released revisions to previous data due to updates to models used to adjust for seasonal fluctuations.

Initial unemployment benefits fell 18,000 to a seasonally adjusted 228,000 in the week ending April 1, after a revised increase of 48,000.

In the week ending March 25, renewed unemployment claims rose by 6,000 to 1.823 million, the highest level since December 2021. This is a measure of hiring.

"The revised [initial jobless claims] data paint a different picture than at the beginning of the year, when we thought the labour market was doing quite well, and now the data show claims continue to rise," said Amos Sahota, executive director of Klarity FX, a foreign exchange consultancy. "This points to a further slowdown. This has slightly dampened sentiment, and overall, the soft landing scenario is not a reasonable prediction now."

While a series of lackluster economic data led traders to scale back bets on how long US interest rates would need to stay in restricted territory, it also reignited concerns about the risk of a recession that analysts say could prove positive for the dollar.

"The net result is that a recession could be more dollar-friendly because the impact of a recession will not just be domestic but global," said Mr. Sahota at Klarity.

The focus now turns to the U.S. jobs report. Economists interviewed by Reuters expect non-farm payrolls to grow by 239,000 in March and 311,000 in February. Over the past year or two, non-farm payrolls have grown more than expected rather than less than expected. Trading is likely to be highly volatile for markets that open on Friday.

Signs of economic distress in the US reinforce the view that the Fed will reverse course. The US interest rate futures market now sees a roughly 50 per cent chance of the Fed keeping rates on hold at its next meeting, with multiple rate cuts before the end of the year.

The dollar rose 0.4 per cent to 131.765 against the yen on Thursday, while the risk-sensitive Australian dollar fell 0.7 per cent to $0.6679 and the equally sensitive New Zealand dollar fell 1.1 per cent to $0.6251.

The pound fell 0.18% to $1.2451 on Thursday, while the euro rose 0.2% to $1.0931.

Key data and events on Friday