February 07, 2025

“The Bank of England slashed its growth forecasts yesterday as the threat of ‘stagflation’ looms large over the UK economy. The US economy is the focus today and markets will be assessing the strength of the labour market.”

Tim Hallinan – Trading Director

USD

Today’s jobs report is the main event on this week’s data calendar, and the market is looking for a solid 170K print and a stable unemployment rate at 4.1%. Non-farm payrolls is a volatile and unpredictable piece of data and, although that lends itself to sizeable moves on release, it is better to study the longer-running averages rather than any individual print. Both the three- and six-month averages have been on a steady cooling trend since the surge in hiring in 2021, but both have ticked up slightly in recent months and this has helped to prevent unemployment from grinding any higher. A strong print would confirm the continued strength in the labour market and bolster expectations for a slow-moving Fed this year. The Canadian employment change data is released at the same time and will make USD/CAD an interesting pair to watch this afternoon, followed by some US consumer sentiment data.

GBP

The Bank of England gave a damning assessment of the UK economy as it cut rates to 4.50% yesterday. The 2025 growth forecast was halved to 0.75%, and an increase in energy prices is expected to push headline inflation to a peak of 3.7% in Q3. With some British media outlets suggesting that Reeves’ job is at risk, those are not headlines that she will want to hear. That said, policymakers did praise the efforts directed towards boosting long-term productivity, and they are not worried about the temporary rise in inflation, which is not expected to lift underlying inflationary pressures. The biggest surprise of all is that Catherine Mann – the arch-hawk that everyone had expected to vote for a hold – instead voted for a jumbo 50bps move. No data for the UK today but there is a speech from BoE Chief Economist Pill. US payrolls will be dominant for GBP/USD.

EUR

The 1.04 handle brought some euro sellers yesterday and it spent much of yesterday consolidating in the 1.03-1.04 range. Eurozone retail sales contracted by 0.2% in December following a downwardly revised 0.0% print for November, mirroring the cyclical weakness in demand displayed in the PMI surveys from recent months. Today is all about payrolls in the US, although we do hear from de Guindos at the ECB.

Markets

European stocks surged again yesterday as risk appetite continued to hold strong. The Euro Stoxx 50 index extended gains to 9% for 2025 – an extraordinary run considering how weak the growth outlook has become.

Main Economic Events (All Times CET)

2:30pm: US Non-Farm Payrolls
2:30pm: Canada Employment Change
4:00pm: US UoM Consumer Sentiment

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