Dollar index rises ahead of crucial employment and manufacturing data

Dollar index rises ahead of crucial employment and manufacturing data
  • The dollar index gained in the first quarter as the Coronavirus disease became a global pandemic.
  • The Fed has vowed to do whatever it takes, echoing statements by Mario Draghi, the former ECB president
  • ADP will release private payroll data today ahead of the official job numbers on Friday.

The dollar index rose in overnight trading after the Federal Reserve pledged to do “whatever it takes” to save the economy from a recession. The statement, which came from San Francisco Fed President, Mary Daly, reminded markets of the infamous words by Mario Draghi, the former ECB chair. He said the same words in 2012 during the European debt crisis.

Dollar index gains in first quarter

The dollar index, which measures the performance of the US dollar against a basket of currencies, rose by more than 3% in the first quarter. This happened as the world’s attention turned to the unfolding Coronavirus crisis, which is ravaging most of the country.

The Dollar index rose in Q1

Dollar index YTD chart

In the quarter, the Federal Reserve swung into action, with the goal of supporting the economy. It slashed interest rates to zero and restarted a bigger version of quantitative easing. It is now in an open-ended quantitative easing program, which will see it pump trillions of dollars into the economy. In addition, it has pumped more than $500 billion into the repurchase market.

US employment data eyed

The focus is now shifting to the next three days when the market will receive important job numbers from the US.

The first data will come from Automatic Data Processor (ADP), which will publish the private payrolls data later today. Economists polled by Refinitiv expect the economy to have lost more than 150k in March. This will be a significant decline from the 186k jobs that were added in February. Still, the data from ADP tends to have a major divergence from the official data from the government.

Tomorrow, the Labour Department will release the jobless claims for the previous week. These numbers are now being watched closely because many companies have paused their operations. Economists polled by Refinitiv expect that more than 3.5 million people filed for unemployment insurance last week. This will be in par with the blockbuster data that was released last week.

Analysts expect the number to continue to rise. Analysts at Pictet expect the number of claims to rise to 5.25 million while those at Goldman Sachs (NYSE: GS) and Citi (NYSE: C) expect the claims to rise to 5.25 million and 4 million respectively. These are dire numbers considering the number rose to about 700k at the peak of the last financial crisis.

On Friday, the Labour Department will release the official jobs numbers for March. Economists expect the NFP to decline by more than 100k, after rising by 273k in February. They expect the unemployment rate to rise to 4%. At some extreme, some forecasters, including Fed’s Bullard expect the unemployment rate to soar to 30% in due course.

US manufacturing PMI data ahead

Meanwhile, the Institute of Supply Management will release the US manufacturing PMI later today. This number, which measures the performance of the manufacturing sector, is expected to decline to 45.7 from the previous 50.1. This is because many companies have closed shop because of the disease.

A lower PMI data will be divergent from those from China and Australia. In China, data from Markit and China Logistics showed that the manufacturing PMI rose to above 50. In Australia, the March PMI rose to more than 50 as consumers rushed to stockpile ahead of the lockdown. In short, the dollar index will likely see significant action as these numbers come in.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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