U.S. jobs data due in the coming week may hold the key to whether the Federal Reserve will raise interest rates for the first time since 2006 in December, signaling its intention to end an era of almost-free dollars.
An increase in Fed rates would have consequences well beyond U.S. borders, increasing borrowing costs for dollar debtors in emerging markets, pushing up the greenback against some major currencies and driving a global reallocation of investment money.
The Fed, which has a dual mandate including inflation and employment, put a December rate hike firmly in play in the past week and investors will be scrutinizing Friday's U.S. employment data to work out the odds of such a move.
Analysts polled by Reuters expect U.S. employers outside the agricultural sector to have added 180,000 jobs in October and overall earnings to have increased by 0.20 percent during the month.
"If we get 175,000 or 180,000 (new jobs) and wages up three tenths of a percent, that significantly increases the probability that the Fed will raise rates in December," said Mickey Levy, an analyst at Berenberg in New York.
HSBC economists also said that average job gains above 150,000 a month in October and November may be enough to keep a December rate hike on the table for most members of the Fed's Federal Open Market Committee.
Financial markets are pricing in a 50 percent probability that the Fed will increase its main interest rate to 0.25 percent or even 0.50 percent from the current 0.125 percent on December 16, according to data compiled by CME group.
The state of the U.S. labor market is not the only concern for the Fed, which made an explicit reference to "uncertainty abroad" when it decided to hold rates steady in September.
Even though this reference disappeared in the October policy statement, lower growth in emerging markets including China and falling oil prices has taken a toll on U.S. manufacturers.
A survey due on Monday is expected to show activity in the U.S. manufacturing sector marked time in October, losing further momentum from the month before.
That partly reflects weakness in China, where manufacturing output unexpectedly shrank in October for a third straight month, an official survey showed on Sunday.
The U.S. non-manufacturing sector, however, was chalking up solid growth, albeit at a slightly lower pace than in September, another survey is expected to show on Tuesday.
"There are some headwinds from U.S. companies, especially manufacturers, while services have done okay," Matthias Thiel, an economist at M.M. Warburg, said. "(But) when it comes to the labor market, the U.S. is in a position to hike rates."
Across the Atlantic, the chances of any rate hike are seen as more distant.
The Bank of England is forecast to hold interest rates steady on Thursday, with just one member of its monetary policy committee seen voting for raising the main rate from the current 0.50 percent.
The BoE is also expected to cut its growth and inflation projections. Britain's economic recovery slowed more than expected in the three months to September after a slump in construction, suggesting more than two years of relatively rapid economic growth may be coming to an end.
A Reuters poll published before the latest UK GDP data found the BoE was not expected to raise rates until the second quarter of next year and, in any case, not before the Fed.
A Fed hike in December, however, could remove a hurdle for an early BoE rate increase, provided that UK salaries grow, according to economists at UniCredit, who expect the BoE's minutes to strike a hawkish tone.
"We expect the overriding message to be that financial markets have gone too far in pushing rate hikes out further into the future," economists at UniCredit wrote in a note.
"With the Fed more likely than not to raise rates in December, we expect the BoE to follow not too long after, in February next year."
In the euro zone, producer prices are expected to have fallen further in October, cementing market expectations for further stimulus from the European Central Bank.
Final readings of manufacturing and services surveys for the region are seen confirming a moderate pace of expansion.
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