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Weekly Market Update (07 February 2022) – Surprisingly strong U.S. jobs report in favor of a hawkish Fed

ByLCMS Traders FX Analysis Team

 FEB 7, 2022

(1) The Reserve Bank of Australia (RBA) held its interest rate unchanged at 0.10% during their meeting last Tuesday. The central bank also ended its quantitative easing (QE) with its final purchase of bonds on 10 February due to the faster-than-expected progress made towards the central bank’s goal. The RBA will also consider proceeding to the reinvestment of its bond holdings during its meeting in May. Despite the ending of QE, the Australian central bank highlighted that this action does not imply a near-term hike in interest rates. Also, the RBA highlighted that it is still too early to conclude that inflation is sustainably within their target band.

(2) The European Central Bank (ECB) kept its monetary policy unchanged during their meeting last Thursday. The central bank’s President Christine Lagarde highlighted that “risks to the inflation outlook are tilted to the upside”, indicating that the central bank is beginning to acknowledge inflation risk. Lagarde also mentioned during the press conference that “inflation is likely to remain elevated for longer than previously expected, but to decline in the course of this year”.

(3) The Bank of England (BoE) carried out an interest rate hike of 0.25% last Thursday, bringing interest rate to 0.50%. All nine MPC members voted for the rate hike, among which four of them voted for a 0.50% hike, indicating the hawkish tone from the committee members. Besides, BoE Governor Andrew Bailey said during the press conference that more rate hikes can be expected.

(4) The U.S. Bureau of Labor Statistics (BLS) reported an unexpected increase in the number of jobs in the U.S. last month. The 467,000 jobs added is four times more than analysts’ forecast of 110,000. Moreover, job figures for last December and November have been revised upwards by 311,000 and 398,000 respectively. The participation rate also rose from the previous 61.9 to 62.2. Unemployment rate inched upwards from 3.9% to 4.0% while average hourly earnings rose to 0.7%. This overall strong jobs report is likely going to support the Federal Reserve’s recent hawkish move.