Forex: US Dollar Outlook Clouded on Conflicting Clues Before Jobs Data

Talking Points:

Japanese Yen Falls as Nikkei 225 Rallies on GPIF Portfolio Reallocation
US Dollar Gains as Traders Look Ahead to November’s US Jobs Report
Leading Economic Data Offers Mixed Clues on US Labor Market Health

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The Japanese Yen fell amid ebbing haven for the safety-linked currency as the Nikkei 225 advanced. The rally followed comments from Takatoshi Ito, chairman of an advisory panel to Japan’s Government Pension Investment Fund. Ito said GPIF should cut its holding of JGBs from 58 to 52 percent of total assets and redirect capital into Japanese equities. The US Dollar rallied against all of its leading counterparts as traders looked ahead to November’s US Employment report.

Economists expect the US economy to have added 185,000 jobs in November, a narrow slowdown compared with October’s 204,000 increase. Yesterday’s supportive Jobless Claims data set and Wednesday’s better-than-expected ADP Employment report have fed speculation about an upside surprise however. Such an outcome stands to boost the greenback as traders price in the probability of a sooner move to “taper” QE asset purchases by the Federal Reserve.

Needless to say, a soft print stands to yield the opposite dynamic. The probability of such a result is not insignificant. Indeed, the Employment sub-index in November’s service-sector ISM report ominously showed the pace of hiring activity slowed to the weakest in six months. The non-manufacturing sector accounts for close to 80 percent of the employed, meaning a downturn there bodes ill for the US labor market as a whole.

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