Solid Non Farm Payrolls Expectations Balanced Out by Global Uncertainty in Fed Interest Rate Speculation

LONDON, Oct. 1, 2015 /PRNewswire/ -- Despite US employment showing strong signs of recovery after the FOMC meeting on September 17 - and ahead of this week's expected strong non farm payroll statistics - global uncertainty is still the driving factor behind the Federal Reserve reluctance to hike interest rates.

Logo - http://photos.prnewswire.com/prnh/20151001/272975LOGO
Photo - http://photos.prnewswire.com/prnh/20151001/272974

During the monetary policy meeting, it was decided that rates were to be held unchanged. The decision to hold didn't shock the market, yet it did surprise them. As the US economy was showing strong signs of recovery, many market analysts believed conditions were ideal for the Federal Reserve to hike interest rates.

"Friday's US labour reading is the most significant risk event of the week for Forex traders. This is especially true considering the last couple of non farm payroll statistics, which missed forecasts. Last month was forecast at 215,000, but it only read 173,000. Despite this, the overall trend comes to an average of 200,000 each month over a two year period, so the data is still positive for the US labour market," explains Jarratt Davis, Head of FX at Smile Global Management.

"A reading of 202,000 is expected on Friday. Anything level or above that mark will most likely strengthen the US dollar. A poor reading will be interpreted as another factor as to why the Federal Reserve is in no rush to raise interest rates until it absolutely has to, leading to a USD sell off.

"If expectations are met or surpassed, it further supports the markets' belief that the US labour market seems solid. So with the Federal Reserve still not hiking their rate, it is starting to look increasingly likely that they are waiting for inflation to catch up - and for global economic uncertainty created by China to settle - before raising interest rates."

In recent weeks, there has been a palpable degree of nervousness in the financial markets. This is partly due to China facing a deep economic turndown, in addition to the falling price of oil. Meanwhile, financial pressures continue to have a strong hold over investor sentiment and confidence.

"Traders should keep in mind that Chinese demand is dropping, leading to falling commodity prices. This is hurting commodity producers, including the likes of Australia and Brazil. A lower Chinese PMI reading has also had a negative impact on these respective currencies, leaving Chinese policymakers with no option but to take action."

For further market commentary from Jarratt Davis, please email [email protected].

SOURCE JarrattDavis.com