NFP Quick Analysis: America overcomes Omicron, more fuel for the Fed and the dollar

The US economy is on fire – there is no other way to interpret the Nonfarm Payrolls report for January 2022. The economy gained 467,000 jobs, roughly triple the early expectations – and on top of a revision worth more than 300K for December. 

Economists warned of significant annual revisions, and they were all to the upside. While the unemployment rate rose to 4%, comes on top of a significant increase in participation, from 61.9% to 62.2%. The pre-pandemic level was 62.8% and the back-to-work recovery seems to be accelerating. 

On the inflationary front, there is room for Americans to smile when seeing their paychecks – but policymakers to be wary of spiraling prices. Workers received a 0.7% increase on average in January, or 5.7% on a yearly basis. This is still below the Consumer Price Index, which stood at 7% in December and is set to further rise in the report for January due out next week. 

The dollar has been on the back foot ahead of the release, driven by calming comments from Federal Reserve officials. No fewer than six officials played down the chances of a double-dose rate hike of 50bp in the bank's upcoming March meeting.

Hawkish moves from the Bank of England and the European Central Bank also put the dollar at a relative disadvantage. But now, the Fed returns to focus on this jobs report and the upcoming inflation figures. 

Higher expectations for Fed action – growing bets for a 50bp rate hike – are set to boost the dollar. US stocks may suffer from speculation about borrowing costs, but are comforted by the overall strength of the economy.