News & Analysis


Yesterday’s delayed bid in the dollar following Wednesday night’s release of the December FOMC meeting minutes kept sterling pinned for most of the session, however, pressure on the pound eased up as the day wore on. This morning, the pound is trading broadly flat against both the dollar and the euro as investors await the release of December’s employment data from the US. With the data likely to determine the next step for US yields, which have been grinding higher throughout the whole week, the release at 13:30 GMT is likely to dominate price action in GBPUSD as the first trading week of 2022 comes to an end.


The euro has steadied against the dollar at recent price levels as investors await crucial data releases from both the eurozone and the US. As for the eurozone, Eurostat will release the preliminary Consumer Price Index print for December at 10:00 GMT at the same time as the release of the bloc’s retail sales data for that month and several economic confidence indicators. The conjunction of the releases will provide a more complete picture for the eurozone’s economic recovery but it could be more difficult to navigate through euro price action given the releases are scheduled at the same time. On the political front, uncertainties remain as Mario Draghi’s possible shift to become Italy’s President could become reality soon with Parliament soon electing a head of state for a seven-year term. This comes at a time when the Italian-German 10Y yield spread sits around one-year highs as Italian borrowing costs have climbed significantly in the last two weeks, pushing up the premium investors demand to hold Italian debt over Germany’s. Later at 13:30 GMT today, euro traders turn to the US labour market report for cues on policy divergence developments between the Fed and the ECB.


The US dollar has been hovering within recent ranges since yesterday as markets await December’s payrolls data which is scheduled for release this afternoon at 13:30 GMT. The data comes after a strong ADP print which beat even the highest forecast, and minutes of the FOMC which showed that maximum employment is within reach while the strong economic recovery and higher inflation could mean interest rate hikes would come earlier and faster. Money markets are now fully convinced of a March rate hike, but FX markets have had a more muted reaction so far. A strong Nonfarms print is likely to see the dollar break out of its current ranges given money markets’ high expectations of policy normalisation, especially if this is paired with a higher participation rate as this has been a point of concern for the US labour market recovery. The unemployment rate has been falling for months, but the labour force participation hasn’t recovered in the same way as workers remain discouraged or impeded in returning to the labour force due to health concerns, care commitments, and supportive household cash balances. The Nonfarms print is expected to come in at 447,000 in December, after a disappointing 270,000 gain in November, and this consensus has been revised upward since the start of the week as many forecasters reviewed their expectations after the beat in the ADP figure combined with elevated Homebase employment data. The unemployment rate is set to fall further to 4.1%, nearing the Fed’s long-run natural rate.


The loonie tracked the progress of the recovery in the S&P 500 index throughout the bulk of yesterday’s trading session following the decline in North American equities after Wednesday’s release of December’s FOMC meeting minutes. However, unlike the US equity indices, the loonie closed out the session higher as oil still tracked higher and Canadian bond yields followed their US counterparts higher. The rally saw the loonie return to ranges seen prior to the release of the meeting minutes. Today, the focus sits firmly on the progression of the Canadian labour market as December’s labour force survey is released at 13:30 GMT. The data will be directly compared with the US Nonfarm data, but with Canada’s labour market recovery at a more mature stage relative to that in the US, underlying measures of labour market slack will be in more focus than net employment gains. Expectations are for a net employment gain of 25k, with wage growth rising to 3.2% and the unemployment rate to hold steady at 6%.



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