Weekly Outlook: Strong US labor data likely to influence Fed rate cut

December 07, 2024 (MLN): An important US economic indicator that came before the FOMC meeting, the Non Farm Payroll (NFP), showed robust growth, with 12-month employment growth exceeding the average and with earlier data indicating moderate gains of 36,000 jobs. 

The US unemployment rate, however, increased from 4.1% to 4.2%. The average monthly wages (MoM) increased by 0.1%, which was higher than anticipated.

All things considered, the economic outlook is strong following the rather optimistic labour market outlook, which appears to be strong enough to persuade the Fed to lower its benchmark interest rate by 25 basis points. 

And above all, the current economic situation is making economic progress more difficult, and newly elected President Donald Trump is letting the public know that what adjustments he intends to make.

However, the present administration is making economic changes that they believe are necessary. 

Due to the year end and unpredictable times, it is better to wait and observe the developments rather than take chances or make risky speculative moves. 

However, the market will continue to watch the US Producer Price Index (PPI) and Consumer Price Index (CPI) data this week, which should aid the Fed in making its interest rate decision. 

This week, the ECB and Bank of Canada will also meet to determine its next interest rate policy. Rate cuts of 25 basis points are anticipated from both Central Banks. 

But the European Central Bank has an additional challenge in deciding how much to decrease its interest rates given its deteriorating estimates of the economy.

The continuous geopolitical risk is one factor that cannot be disregarded. Following the outcome of the French elections and the most recent events in South Korea, it has become worse.

#GOLD @ $ 2633- If gold fails to advance through $ 2652 for $ 2665-70 levels, the bias will stay on the downside. Break of $ 2612-15, however, might push it down to go towards the $ 2595-00 zones.

#EURO @ 1.0568- Euro still faces considerable downside risk and may stay below 1.0720 if it moves up. Nevertheless, if 1.0460 is broken, support 1.0390 should hold for a recovery.

#GBP @ 1.2742-Pound Sterling should hold 1.2580-00 levels on the dips. Nonetheless, Cable will be able to test 1.2840 zones, only if there is an upward break of 1.2790-00 levels.

#JPY @ 150.03- If USD gives up 151.20, it will encounter resistance around 152.10-20. The probability of a dip will rise if 148.40 breaks for 147.70–80.

The writer is the former Country Treasurer of Chase Manhattan Bank

Disclaimer: The views and analysis in this article are the opinions of the author and are for informational purposes only. It is not intended to be financial or investment advice and should not be the basis for making financial decisions.