Markets have pre-empted a softer print relative to the consensus 65k, largely on the back of Kevin Hassett’s warnings earlier this week. Our economist’s call is 80k payrolls and unchanged 4.4% , which in our view would be enough to remove some negatives from the dollar. Still, the conditions for a sustainable USD recovery aren’t there
USD: Pivotal Payrolls
The latest selloff was not initiated primarily by US data weakness, but the calendar this week has all but endorsed the sourer mood on the greenback. Yesterday, (for December) were flat on the month versus expectations of a 0.4% gain, meaning real sales volumes fell. The control group slipped 0.1% after a downward revision to November, pointing to softer consumer spending and likely downgrades to 4Q25–1Q26 GDP. Most major categories posted declines, with building materials the lone area of strength.
On the labour market side, weekly payrolls came in rather soft, with figures consistent with private sector monthly payrolls growth of 20-25k per month. The rose a benign 0.7%, the weakest since 3Q21, with private wage growth easing to 3.3% YoY. Fewer than 0.88 job openings per unemployed worker and a subdued quit rate highlight how the labour market has shifted from excess demand to worker oversupply.
Today’s jobs report is a pivotal event for the FX market. A materially weak print would likely pave the way for markets to price in a in April, and for to test 96.0 in the coming days. Our call is 80k payrolls, more upbeat than consensus (65k) and market expectations: the Bloomberg whisper number has dropped from 50k to 37k since Kevin Hassett’s comments on Monday. We don’t expect major downside surprises on 2025 payroll revisions (consensus -825k) or upward surprises in unemployment, which we see stable at 4.4%.
If we are right with our call, we should see some of the recent macro negativity leave the dollar. However, conditions for a broad-based sustainable USD recovery don’t appear to be in place, and we think an upward correction in DXY wouldn’t have long legs.
EUR: Return to 1.180 Is Our Baseline
The inputs from the eurozone into the FX market remain very scarce. It’s a quiet period data-wise, and ECB President Lagarde didn’t really give enough reasons to believe euro strength is concerning just yet.
Should move back past 1.20 – perhaps on soft US data – we wouldn’t be surprised to hear some members again pushing the idea of an FX-driven rate cut. However, our assessment remains that 1.25 would be the level driving a material downward revision in inflation projections and potentially a rate cut, and the impact of scattered comments on EUR strength wouldn’t do much to curb USD-driven EUR/USD upside.
Today, we think payrolls can actually send EUR/USD in the other direction, and favour a return to a 1.180 anchor in the near term.
GBP: Hard to Fight Bearish Mood
dipped yesterday as markets partly priced out some risk of PM Keir Starmer facing a leadership challenge after several endorsements from Labour Party members. However, that recovery proved to be very short-lived, with plenty of interest in buying the dips in EUR/GBP, which we see as a mirror of both political concerns and dovish risks to Bank of England expectations.
Polymarket continues to show a 70% probability of Starmer resigning by June 30, and concerns about a less centrist Labour successor carry quite a bit of risk for GBP, given the potential fiscal implications. Our view remains broadly bullish on EUR/GBP on the back of this and of our call for two BoE cuts by June: 0.88 remains a very realistic short-term target.
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