Markets in Focus: Jobs, Rates, and Currency Movements.

  • USD Outlook: December jobs report is expected to show 138k payrolls and 4.2% unemployment, with potential for upside surprises (house projection: 160k). Strong figures could delay rate cut expectations and boost the dollar.
  • CPI Focus: Inflation concerns and next week’s CPI report may have a larger impact on markets than today’s jobs data, with potential for dollar volatility if payrolls disappoint.
  • Canadian Jobs: Canada’s employment data predicts a 25k gain and unemployment at 6.9%. However, CAD moves are driven by US-Canada trade risks and speculation around new prime ministerial candidates, with Mark Carney seen as market-friendly.
  • EUR Weakness: EUR/USD undervalued by over 2.5%, but lower gas prices and stable energy supplies offer some support. Euro could outperform other G10 currencies if US payrolls come in strong.
  • GBP Stability: UK Treasury’s fiscal discipline pledge calmed markets, stabilizing GBP and gilt yields. However, larger BoE easing and fiscal tightening may weigh on GBP in coming months, with buyers expected in the 1.225-1.230 range.

USD: Jobs Data to Guide Fed Outlook
The December US jobs report is expected today, with forecasts at 138k payroll growth and an unchanged unemployment rate of 4.2%. Our team aligns with the 4.2% prediction but sees potential for an upside surprise, projecting 160k jobs.

Strong employment numbers could bolster the dollar, delaying market expectations for a March rate cut and shifting the first fully priced move further into the year. With inflation concerns resurfacing, next week’s CPI data may have an even greater market impact. A softer payroll result could weaken the dollar in the short term, but long positions might recover ahead of key economic events, including the January 20 inauguration.

In Canada, jobs data is also due, with expectations of a 25k increase in hiring and a slight unemployment rise to 6.9%. However, CAD’s movements are more influenced by US-Canada trade tensions, as speculation grows around Mark Carney or Chrystia Freeland becoming prime minister. Markets appear to favor Carney for his economic background.

EUR: Pricing in the Negatives
EUR/USD undervaluation has deepened, with the pair diverging from short-term rates. Despite the current -175bp swap rate gap, EUR/USD has found support around 1.0250, with lows near 1.022 earlier this month.

On the positive side, European gas prices have eased to €45/MWh amid milder weather and strong US LNG supplies. Discussions about reactivating Ukraine’s gas pipeline may also provide some optimism. These factors suggest the euro might hold steadier than other G10 currencies, even if US payrolls surprise to the upside.

GBP: Treasury Signals Stability
The pound rebounded slightly yesterday as 10-year gilt yields steadied at 4.80%. Comments from a UK Treasury official reaffirming fiscal discipline helped calm market nerves. If fiscal forecasts in March show tighter headroom, Chancellor Rachel Reeves may introduce fiscal consolidation—likely through spending cuts rather than higher taxes.

While this reassurance has stabilized GBP for now, larger Bank of England easing could weigh on the currency in the coming months. Today, US payroll data may exert additional pressure, but GBP/USD should attract buyers in the 1.225-1.230 range if gilts remain calm.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.