If the NFP release is lower than expected later tonight, the market will likely unwind the US dollar and reconsider the chances of an interest rate cut starting in March.

The greenback fizzled after the Fed's interest rate announcement yesterday. However, today's (February 2) scheduled Non-farm Payroll (NFP) data release gave traders hope. The US Dollar Index (DXY) put the brakes on its slump and stabilized around the 103.00 level in the Asian session.

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Fed Chair Jerome Powell dismissed market speculation about a rate cut starting in March yesterday. The market responded by lowering bets for a "rate cut" scenario starting in March while increasing confidence for the start of the policy in May.

This situation pressured the US Treasury yield and the US dollar rate. On the other hand, traders and investors turned to high-risk assets in light of the earnings outperformance of some of Wall Street's top tech companies.

Attention will next focus on the NFP release in the New York session. The provisional consensus expects payrolls to decrease from 216k in December 2023 to 187k in January 2024, while the unemployment rate will increase from 3.7% to 3.8%. Estimated average hourly earnings growth is also projected to slow from 0.4% to 0.3%.

If the actual NFP figure is weaker, markets will likely reconsider the Fed's rate cut opportunity from March. However, a better NFP will confirm the Fed's ability to keep interest rates high for longer. Traders and investors will likely wait until they gain clarity on this uncertainty.

"If we have a relatively soft payrolls number... then I think you'd probably see the needle move a little bit further back, closer to 50-50" for March rate cut expectations, Ray Attrill, head of FX strategy at National Australia Bank, said of Friday's U.S. jobs report.