The US dollar index (DXY) is having its best day this year today as traders wait for tomorrow’s nonfarm payrolls (NFP) data. The index is trading at $89.81, which is slightly above this year’s low of $89.15.
Sooner rate hikes?
The dollar index is rising after the two Democrats running for the Georgia Senate race defeated the two Republican incumbents. This victory helped to ensure that the Democrats will control the Senate during Biden’s administration.
The immediate impact of this is that the new administration will unveil a large stimulus package. Democrats have already lined a package worth trillions of dollars to help support the economy. It includes billions of dollars to households and states and local governments.
Their case for more stimulus was made stronger yesterday when ADP released the weak private payroll numbers. The data showed that the economy lost more than 123,000 jobs in December.
In general, a generous stimulus package is usually bad for the dollar index. However, it could also help speed the recovery, which could force the Federal Reserve to hike interest rates. In its recent guidance, the bank expects rates to remain at the current level for the next two years.
Nonfarm payroll ahead
The dollar index will next react to the US nonfarm payroll numbers that will come out tomorrow. Economists polled by Reuters expect the numbers to be relatively weaker. For one, they see the economy adding about 71,000 jobs in December. That will be the lowest figure since April last year when the country lost more than 19 million jobs.
They also expect that the unemployment rate rose from 6.7% to 6.8% in December while the participation rate dropped to 61.4%.
