CAD
It is not just the US that is due to receive a jobs report today. Canada is also set to see a new round of labour market data. Unlike the counterpart US readings, however, we expect prints north of the border to continue the recent trend of underwhelming markets. Consensus expectations look for the unemployment rate to increase from 6.8% to 6.9%, wage growth is seen falling from 3.9% to 3.8% and jobs gains are projected at a modest 25.0k. If realised, and set against a set of US readings that also match expectations, this would once again highlight the stark economic divergence playing out in North America. From an FX perspective, this would warrant another leg higher for USDCAD, in line with our longstanding call – we look for the pair to establish a bridgehead above 1.44.
USD
Cable continues to be a focus for traders heading into the end of the week, prompted by the recent rise in Gilt yields, and with today’s US jobs report looming. As we have noted previously, however, we see expectations for a Trump presidency as primarily responsible for these recent market moves, despite market consternation. Increased government spending and tariff risks should support upside inflation pressures in the US, warranting tighter Fed policy and higher Treasury yields, which would by extension weigh on govvies more broadly. The dollar too should outperform against such a backdrop, leading other currencies to fall on a relative basis. Indeed, the combination of rising yields and a falling currency is not unique to the UK – this has been the pattern across much of the G10 complex over the past month. It is a trend that could extend later today too. Admittedly, markets expect to see a 165k December payrolls print, accompanied by a stabilisation of the unemployment rate at 4.2%, and 0.3% MoM growth in average weekly earnings. That said, we see an elevated risk of sharp market moves stemming from both upside and downside misses. A beat would see the current round of dollar strength extend, with GBPUSD, in particular, likely to come under further pressure. An undershoot, in contrast, could see a sharp broad-based pullback for the dollar given the additions to dollar length that have taken place post-election.
EUR
Limited eurozone data flow kept EURUSD trading in line with broad dollar moves on Thursday, a dynamic we expect to continue through to the weekend with all eyes on US jobs data this afternoon. A print that matches expectations should do little for the greenback, leaving EURUSD tracking sideways to end the week. But as noted above, we think a miss to either side holds elevated risk of volatility relative to recent releases.
GBP
Despite our view on the factors underlying recent sterling moves, given recent history, the combination of rising UK rates and a falling exchange rate has brought back memories of the market dysfunction that stemmed from Liz Truss’ ill-fated mini-budget. Moreover, this is an easy parallel to draw at present. The October budget was poorly received by both markets and the public, and the government has done little since then to address the issue. This, however, misses the point. UK fundamentals remain solid, and in our view better than underlying eurozone conditions. Growth differentials, interest rates, and relative exposure to tariff risks all favour GBPEUR upside on a fundamental basis. With that in mind, we are inclined to view this week’s sterling drop as a knee-jerk panic rather than the beginning of a more sustained selloff. We continue to see upside for the cross over the medium term.
This content was originally published by our partners at Monex Canada.