FX Daily: US employment continues on a benign trend?

The focus in FX markets today is on whether US employment continues on its benign downward path and represents the economy coming into ‘better balance’. Of interest will be whether December’s number gets revised down – marking 11 downward revisions out of 12 last year. We could see the return of a marginally more pro-risk environment.

USD: Jobs report in focus

This week’s price action in US rates markets is instructive. Despite the Federal Reserve pushing back against prospects of a March cut, interest rates have still come lower. That may be a function of investors watching US regional banks remain under pressure. Or more likely it reflects a conviction call that policy rates are coming lower this year and there is no point fighting this overwhelming trend. This is the reason that the dollar did not build on gains seen early yesterday.

Coming to today, we have the US January jobs report. Consensus is for +185k in jobs gains, while we forecast +200k. However, the Fed seems pretty comfortable that the labour market is coming into better balance and we doubt a +200k number needs to trigger a major repricing of the Fed easing cycle. Instead, we are interested to see whether December’s +216k number is revised down. This would then represent 11 of the last 12 nonfarm payroll (NFP) jobs releases being revised lower and support the Fed’s contention that tight US labour markets are a thing of the past.

We typically have a slight negative bias for the dollar on NFP day on the working assumption that investors use NFP-inspired FX liquidity to put money to work outside of the dollar. We also again want to highlight that 9 February could be a big day for FX markets. Annual US CPI benchmark revisions are released today and will confirm whether the late 2023 US disinflation trends are real – or get revised away.  

DXY has been trading an exceptionally tight 102.77 to 103.82 range over the last two weeks – but may be due a test of lower levels now