Forex Market Outlook for the Week February 01 – 05, 2021

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In the upcoming week, the jobs report from the United States will provide an indication as to how the labour market is doing after the job gains for seven consecutive months was reversed in December. Manufacturing PMI reported by the ISM will also be in the spotlight. Further, investors will monitor the progress related to stimulus discussions in Washington. Monetary policy decisions from the United Kingdom and Australia will also be keenly observed by investors. Having said that here is an outlook on a few key releases scheduled for next week:

#1: United States ISM Manufacturing PMI (02/01/2021 Monday 15:00 GMT)

In the United States, the Manufacturing PMI reported by the Institute for Supply Management jumped to the 60.7 level in December from the 57.5 level reported in November. The reading for the month came in well above analysts’ expectations of 56.6. With this, the index has risen for the 7th month in a row driven by an increase in manufacturing activity. This is also the strongest growth rate ever since August 2018. New orders, production, and employment rose.

Forecast for January 2021: 60.0

#2: Australia RBA Rate Statement (02/02/2021 Tuesday 03:30 GMT)

forex market outlookThe Reserve Bank of Australia releases the Rate Statement on the first Tuesday of every month, except January. The Central Bank uses it as a tool for communicating with investors as regards the monetary policy. It provides the outcome of the members’ decision on setting interest rates and commentary on the economic conditions that impacted their decision. More importantly, it discusses the nation’s economic outlook and provides clues on future decisions.

#3: New Zealand Employment Change (02/02/2021 Tuesday 21:45 GMT)

In New Zealand, employment declined by 22,000 (0.8 percent) to 2,709,000 million in the September quarter of last year. This is by far the biggest quarterly drop ever since the first quarter of 2009. On a seasonally adjusted basis, the employment rate declined to 66.4 percent from 67.1 percent in the prior quarter.

Forecast for the December quarter of 2020: 0.1 percent

#4: New Zealand Unemployment Rate (02/02/2021 Tuesday 21:45 GMT)

In New Zealand, the unemployment rate rose to the 5.3 percent level in the third quarter of last year from 4.0 percent in the prior quarter. The reading for the quarter came in below analysts’ expectations of 5.4 percent. This was by far the highest unemployment rate ever since the final quarter of 2016. The number of jobless people in the country rose by 37,000 to 151,000, the largest quarterly increase ever as the coronavirus crisis hit the labor market. The underutilization rate increased to 13.2 percent (from 12.0 percent), the employment rate declined 0.7 percentage points to 66.4 percent, and the labor force participation rate edged up 0.2 percentage points to 70.1 percent.

Forecast for the December quarter of 2020: 5.6 percent

#5: United Kingdom Asset Purchase Facility (02/04/2021 Thursday 12:00 GMT)

At the meeting held in December 2020, the Bank of England decided to maintain the total stock of UK government bonds and investment-grade corporate bonds at GBP 895 billion.

Forecast for February 2021: GBP 895 billion

#6: United Kingdom BOE Monetary Policy Report (02/04/2021 Thursday 12:00 GMT)

The Bank of England releases the Monetary Policy Report on a quarterly basis. The Report provides the Central Bank’s projection for economic growth and inflation over the next two years. If the Report has a more hawkish tone than expected, it is good for the British Pound.

#7: United Kingdom MPC Official Bank Rate and Asset Purchase Facility Votes (02/04/2021 Thursday 12:00 GMT)

In the United Kingdom, the members of the Monetary Policy Committee voted unanimously to maintain the Official Bank Rate at the record low level of 0.1 percent and the size of the bond-buying program at GBP 895 billion during the meeting held in December last year. The policymakers decided to take a wait-and-see stand amid uncertainty around the post-Brexit trade deals and concerns related to the coronavirus situation. However, the Central Bank pointed out that the successful Covid vaccines trials and plans to roll vaccines out widely during the first half of this year is likely to reduce the downside risks to the nation’s economic outlook. Further, they pledged to take all necessary action to achieve the 2.0 percent inflation target so as to help sustain employment and growth. Moreover, the CPI inflation is anticipated to rise sharply to reach the target during the spring as the VAT cut ends and the large decline in energy prices earlier in the year drops out of annual comparisons.

Forecast for February 2021: MPC votes – 0-0-9 and Official Bank Rate – 0.10 percent

#8: United Kingdom BoE Monetary Policy Summary (02/04/2021 Thursday 12:00 GMT)

Released on a monthly basis, the Bank of England uses the Monetary Policy Summary Report as a tool for communicating with investors as regards the monetary policy. In addition to containing the outcome of the members’ vote on setting interest rates and other policy measures, it also provides commentary on the economic conditions that impacted their votes. More importantly, it projects the nation’s economic outlook and provides clues on future votes.

#9: Australia RBA Governor Philip Lowe Speaks (02/04/2021 Thursday 22:30 GMT)

Philip Lowe, Governor of the Reserve Bank of Australia, is scheduled to testify before the House of Representatives Standing Committee on Economics in Canberra. If his comments are more hawkish than expected, it is good for the Australian dollar. Markets often turn volatile during his speeches as traders make an attempt to understand the direction of interest rates.

#10: Canada Employment Change (02/05/2021 Friday 13:30 GMT)

Canada shed 52,700 jobs in December last year, while analysts expected the nation to lose as many as 27,500. The reading for the prior month was revised downward to an increase of 54,600. This was the first decline in employment ever since April as part-time jobs dropped by 95,400 and full-time employment rose by only 42,700. Employment fell in those industries that were directly impacted by new as well as continuing public health measures. Accommodation and food services, other services, and culture, information, and recreation registered declines.

#11: Canada Unemployment Rate (02/05/2021 Friday 13:30 GMT)

In Canada, the unemployment rate revised to 8.8 percent in December last year, up from 8.5 percent in the prior month. Analysts had expected the unemployment rate to come in at 8.6 percent. The labor force participation rate declined to 65.0 percent from 65.1 percent a month earlier. This is the lowest participation rate since August last year. The youth jobless rate rose to 17.8 percent from 17.2 percent in the prior month.

#12: United Kingdom BOE Governor Andrew Bailey Speaks (02/05/2021 Friday 13:30 GMT)

Andrew Bailey, Governor of the Bank of England is scheduled to speak on “Central banks and the post-Covid recovery” at an online event hosted by the German Society. The audience expected to ask questions. Markets often turn volatile during his speeches as traders make an attempt to understand the direction of interest rates.

#13: United States Average Hourly Earnings (02/05/2021 Friday 13:30 GMT)

In the United States, the average hourly earnings of all private nonfarm payroll employees increased by 0.8 percent on a month-over-month basis in December last year after rising 0.3 percent in the previous month. The reading for the month came in above analysts’ expectations for a 0.2 percent increase. This was the strongest gain in average hourly earnings ever since April last year. On a year-on-year basis, the average hourly earnings rose by 5.1 percent, following the 4.4 percent increase in the prior month. The annual figure also came in above analysts’ expectations for a 4.4 percent gain. The average hourly earnings of private-sector nonsupervisory and production employees rose by 20 cents to US$25.09. The increases in average hourly earnings largely reflect the disproportionate number of lower-paid workers in the leisure and hospitality sectors who went off payrolls, putting upward pressure on estimates.

Forecast for January 2021: 0.3 percent

#14: United States Non-Farm Employment Change (02/05/2021 Friday 13:30 GMT)

The US economy shed 140,000 jobs in December last year against analysts’ expectations for an addition of 71,000 jobs. This is the first decline in employment ever since the starting of the job market recovery in May 2020 from the record loss of 20.787 million jobs in April. Employment declined in leisure and hospitality, private education, and government sectors. This was partially offset by increases in professional and business services, retail trade, construction, and transportation and warehousing. In December, the nonfarm employment stood 6.5 percent below the February 2020 levels. However, the outlook for the job market looks brighter in 2021 as the recently approved US$900 billion stimulus package is expected to support nearly 19 million people. Further, the Biden administration and the new Democrat-led House and Senate are likely to work on more fiscal support.

Forecast for January 2021: 55,000

#15: United States Unemployment Rate (02/05/2021 Friday 13:30 GMT)

In the United States, the unemployment rate remained unchanged at the 6.7 percent level in December last year against analysts’ expectations of 6.8 percent. However, the jobless rate remained well above the pre-pandemic levels of 3.5 percent. The latest reading pointed towards stagnation in the labor market recovery as a result of a lack of financial support and record COVID-19 infections, which prompted the imposition of restriction in many states in response to the outbreak.

Forecast for January 2021: 6.7 percent

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