Fed funds futures are showing roughly 71% odds of the central bank not hiking rates in June now. Mind you, it was roughly 70% in favour of a rate hike at the start of the week. That's a complete U-turn in terms of pricing as Fed policymakers delivered a somewhat coordinated message that they might very well "skip" a rate hike this month.
And when you consider the balance of the situation now, the risks seem to be favouring further downside for the dollar rather than any major upside as we head into the US jobs report later today.
In the event that the numbers are strong and we get a solid report, it just once again reaffirms that labour market conditions are holding up well. That doesn't really take away from the messaging that policymakers might "skip" a 25 bps move in two weeks' time.
In case there is some reason that the labour market is running extremely hot, perhaps we might see some last-minute message by Fed speakers before the blackout period tomorrow. But barring any major surprise, the data should just reaffirm that things are solid and the Fed already knows that by now.
So, to deliver a message as they did in the past two days, does say a lot about what the line of thinking is. Of course, we could see other policymakers besides Harker come out to provide a rebuttal later today but then that will come after the jobs data.
Going back to the report, if there is going to be a downside miss on the numbers and wage pressures ease, that will likely pile on the misery for the dollar. If policymakers are now talking about a "skip", such data might even turn that into talk of a "pause".
In other words, it's all about measuring the strength of the Fed pivot now.
Even with a decent set of numbers, the Fed is still going to move to the sidelines and reassess the situation again in a month's time. But if there is some shakiness in the jobs report and then softer CPI figures later this month, that could really set off some alarm bells for dollar bulls to go cowering.
