USD traded higher against all the major currencies on Thursday as months of political uncertainty in the United States finally settled. Joe Biden was certified as the winner of the 2020 election and in a statement President Trump said there will be an orderly transition on 20th January 2021. The control of Congress has been resolved with Democratic victories in Georgia.
Currencies and equities cheered these developments with the Dow Jones Industrial Average climbing 211 points and USD rising across the board. Amidst all of yesterday’s wild developments in Washington, it is easy to forget that its non-farm payrolls week. NFP is typically one of the most market moving pieces of US data and economists are calling for the fewest job growth since April.
For the first time in 8 months, the US economy may be adding less than 100,000 jobs in the month of December. We haven’t seen numbers this bad since the harsh lockdowns in the spring. In fact, we wouldn’t be surprised if there were net job losses in December 2020. Many states like California restored restrictions, according to ADP, private payrolls declined by 123,000, which was much worse than the 88,000 forecast.
Taking a look at the arguments in favor of stronger and weaker payrolls, all signs point to a soft release. Aside from ADP, the employment component of services ISM dipped below 50, a sign that more companies are shedding than adding jobs. Jobless claims also spiked at the end of the year, while the manufacturing sector continues to chug along those numbers are separated from NFP.
The big question is whether investors will shrug off a soft release just like they have every piece of bad news we’ve had this year. The rallies in currencies and equities will probably continue as long as job growth is positive but a negative read may be hard to ignore especially at the onset.
Vaccines are being rolled out but it will be a long time before large swaths of the population are vaccinated. As a result, lockdown measures will remain in place and could toughen before they are eased.
Negative job growth will erase Thursday’s gains in USD/JPY and send EUR/USD to fresh multiyear highs. Anything in excess of 80,000 would be positive as long as there isn’t a major spike in the unemployment rate or slowdown in wage growth. Throughout last year and into this one, investors have looked past weak data. While NFPs are important, most people have discounted a softer release.