Global financial markets are expected to move more cautiously ahead of the release of the US Non-Farm Payrolls (NFP) report for December which will be announced tonight at 9.30pm Malaysia time.
This data is the main focus of investors as it is one of the most important economic indicators in assessing the strength of the US labor market and the direction of the Federal Reserve's (Fed) monetary policy.
In short, NFP data measures the number of new jobs created in the US economy, excluding the agricultural sector.
This report is often used as a benchmark for the momentum of economic growth and inflationary pressures, hence it is closely watched by the Fed in making interest rate decisions.
Based on the Forex Factory survey, the market expects an increase of around 66,000 new jobs for December, slightly higher than the previous reading of 64,000.
Although this increase appears modest, its significance becomes greater because it is published ahead of the Federal Open Market Committee (FOMC) meeting on January 29.
If the NFP data shows that the US labor market remains stable or stronger than expected, the Fed is expected to continue its cautious approach by keeping interest rates at current levels, in line with efforts to control inflation.
On the other hand, a much weaker reading could potentially increase expectations that the Fed may consider easing monetary policy sooner than expected.
From a currency market perspective, a higher-than-expected NFP reading typically supports a strengthening US dollar (USD) as it reduces the likelihood of an interest rate cut in the near future.
This could potentially put pressure on gold prices and risk assets.
On the other hand, if the NFP data is lower than expected, the USD risks weakening as the market begins to reassess the possibility of Fed easing, thus providing support to gold and safe-haven assets.
Overall, although the difference between the previous reading and market expectations is not large, market reactions are expected to be sensitive given that the NFP report is an important input to the FOMC decision on January 29.
Therefore, the USD and global market movements tonight are expected to be largely driven by the overall picture of the US labor data, not just the headline figures alone.
