The greenback that suffered steep losses on Friday and remains mainly on the defensive at the start of a new trading week, will have a critical test in the days to some. The FOMC meeting and the NFP employment report will set the tone for the major currency pairs in the short term.
Investor concerns over the US GDP and the global economy in general make the markets vulnerable to losses and assume a more cautious tone by major central banks amid the increasing signs that the economy still needs support from the monetary policy and is not ready for tightening yet. Moreover, there are even speculations about a possible recession.
In this environment, market expectations of further rate hikes in the US are rapidly abating, while the political chaos in the US adds to the worries. As such, traders are betting on a more cautious Fed’s tone and expect the officials will signal a pause in tightening on Wednesday. The dollar is ready for a more ‘dovish’ scenario but downside risks for the currency are still there.
As for the labor market report, following a string growth by over 300K in December, the results could disappoint, also due to the US government shutdown. A result around +100K will be a bearish scenario for the buck, while a rise by approximately 150K is going to be a neutral outcome for the American currency. In general, the bearish risks for the USD prevail, especially amid a threat of another government shutdown.