January 10, 2025

“The pound’s plunge began to cool off yesterday and the focus now turns to the dollar ahead of today’s critical non-farm payrolls print, where it will likely need a strong number to fuel a rally higher.”

Sam Cornford – Head of Trading

USD

Today’s December non-farm payrolls release is the highlight of this week’s data calendar for the strong dollar, where the market consensus is looking for an unchanged 4.2% unemployment rate and a 165K jobs number. An upside surprise could reignite the notion that the US economy could be reaccelerating and inject some further caution on the Fed’s cutting path this year, pushing back pricing for the next cut to beyond the May meeting. Or, weaker jobs growth or higher unemployment can shift attention back to the potential for further weakness in the labour market. Fed commentary has been relatively varied, but both the minutes and yesterday’s speeches have continued to flag the upside risks to inflation. After today, traders move onto CPI inflation next week and Trump’s inauguration on the 20^th.

GBP

The UK bond sell-off has stabilised since yesterday, but sterling is yet to stage a meaningful recovery and it remains below the 1.23 handle. The Chancellor sent the Chief Secretary to the Treasury in her place to answer some emergency questions in the House of Commons yesterday, where markets were assured that committing to the fiscal rules is non-negotiable. It is unclear what part this had to play in the pound finding a floor, but it does suggest that, without a cooling in yields before the next fiscal event, the UK government is going to need to choose between further tax rises or some spending cuts. The latter is a much more likely scenario. Turning to the Bank of England, MPC member Breeden said that the gradual approach is right, but that the evidence does point to further cuts being made this year. On the data side, CPI, GDP, and retail sales data all arrive next week.

EUR

The euro has been relatively quiet over the past couple of days, having largely avoided the tumult faced by sterling, but EUR/USD continues to trade well below the levels indicated by the 2-year interest rate differential to the US. While the relationship between the two had been very tight throughout 2024, they have decoupled over the past couple of weeks as the market has seemingly opted to embed an extra bit of risk premium amid the weak eurozone growth outlook and the prospect of heavy Trump tariffs this year. Retail sales yesterday were soft at 0.1% month-on-month and industrial production data from France and Spain this morning was relatively mixed.

Markets

US equity markets were shut for Jimmy Carter’s funeral yesterday, but futures are pointing towards a slightly weaker open today. European stocks were generally positive, and interestingly it was the FTSE 100 outperforming with a 0.8% rise through the session.

Main Economic Events (All Times CET)

8:00am: Norway CPI Inflation
2:30pm: US Non-Farm Payrolls
2:30pm: Canadian Employment Change
4:00pm: US UoM Consumer Sentiment

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