Forex Today: US Dollar recovery accelerates as critical employment data loom

Key market developments for Friday, 6 November:

The US Dollar (USD) is advancing against its peers early on Friday as the USD Index approaches 102.00, following a marginally higher close on Thursday. September Retail Sales figures are due on the European economic calendar. Attention will then turn to the US employment report for October, including Nonfarm Payrolls, wage inflation and the Unemployment Rate, which could heighten market volatility later in the day.

Wednesday brought heavy selling of the USD as crude oil prices slumped after the Republicans’ defeat in the US midterm elections. Demand for safe havens re-emerged on Thursday, lending support to the USD against other currencies. The Nasdaq Composite dropped more than 6% during the session; the Dow Jones Industrial Average and S&P 500 indices declined 3.4% and 4.4%, respectively. US stock index futures are mixed early on Friday, while oil prices are edging higher following Thursday’s sharp recovery.

Speaking to reporters at the White House, US President Donald Trump said Iran was not undertaking any activity related to its nuclear programme without US approval. He added: “Now we will make a decision [on Iran]. Do we want to go further… and certify it… so that it will never happen again. I would rather not destroy the rest of the country if possible, but maybe I will have to. You will know soon enough,”

October’s US Unemployment Rate is expected by markets to hold at 4.2%. Nonfarm Payrolls are forecast to increase by 65K, compared with September’s rise of 29K.

US payrolls put Fed’s inflation focus in the spotlight

With the latest US payroll figures due to dominate Friday’s agenda, Commerzbank analysts caution that “anyone hoping for a quiet trading session on Friday after this eventful week is likely to be disappointed,”. They call the release “one of the most important pieces of economic data”, explaining that it “usually provide[s] an indication of the Fed’s future monetary policy.”

For the bank, “the key question is what this means for the Fed’s future monetary policy.” Its analysts argue that “if the labour market remains as robust as it has been so far this year, policymakers are likely to maintain their focus on the inflation figures due next week,”. This suggests that continued strength in employment would leave the forthcoming price figures central to the Fed’s policy discussions.

Gold reached a new two-week high close to $4,150 on Thursday, only to surrender much of the advance and finish below $4,100. Selling pressure persists early on Friday, with the precious metal down more than 1% on the day and trading below $4,050.

Following its November policy meeting, the Bank of England (BoE) announced a 25 basis points (bps) increase in its interest rate to 4%. At the press conference, BoE Governor Andrew Bailey said another rise in the bank rate may be warranted unless progress is made towards resolving the conflict in the Middle East. GBP/USD is trading around 1.3400 on Friday, down about 0.35% on the day, as bearish pressure continues following Thursday’s marginal decline.

Thursday brought an end to a three-day run of gains for EUR/USD, which is extending its decline below 1.1200 during Friday’s European morning.

USD/JPY is steady within a tight range just below 158.00, having fallen about 0.5% on Thursday.

USD/CAD is extending its upward momentum above 1.4050 in the European morning, following a gain of about 0.3% on Thursday. October’s Canadian labour market figures are due from Statistics Canada later in the day. Investors anticipate an unchanged Unemployment Rate of 6.5% and a Net Change in Employment of 13.6K, following September’s disappointing reading of -68.3K.