US and Canada jobs day and more

The US Dollar enjoys a firmer today ahead of what promises to be a memorable North American session that features the US December employment report and the Supreme Court’s judgement on the legality of the widespread tariffs implemented under the president’s emergency powers. The larger than expected rise in household spending in Japan and German industrial output appeared to have little impact. The greenback is trading at new highs against both the euro and the yen. The US employment data is not expected to have deteriorated, which will reinforce ideas that the Federal Reserve is on hold until at least Q2. Meanwhile for some time, many have expected the use of the president’s emergency powers to be struck down by the high court. Late yesterday, President Trump appeared order Fannie Mae and Freddie Mac to buy $200 bln in mortgages in an attempt to drive down rates. There seemed to be little immediate impact, and to the extent that some economists see an impact, it is limited to 25-50 bp. The average 30-year mortgage rate is about 6.15%, the lowest since October 2024.

Prices

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The euro remains on its backfoot despite stronger-than-expected Germany industrial production. The single currency was sold to a new low for the week near $1.1635 as the market positions for today’s US jobs data. The next target is the retracement objective closer to $1.1610. 

The expiration of large options in the last two sessions at JPY157 and the poor labor earnings data cleared the way for the dollar’s advance today to almost JPY157.75. It was undeterred by the stronger than expected rise in household spending. The dollar’s highs in November and December last year were around JPY157.70-90. There are about $773 mln in options struck at JPY158 that expire today and another set for almost $950 mln that expires Monday. 

Sterling is no match for the dollar today. It is testing support at $1.3400, which held on New Year’s Eve. The 200-day moving average is slightly lower (~$1.3395) and the next retracement target is near $1.3365. Options for around GBP510 mln at $1.3350 expire today. 

The US dollar reached almost CAD1.3890 yesterday and is consolidating slightly below there today ahead for the US and Canadian employment data. The Canadian dollar typically holds up better on the crosses in a firm US dollar environment. A move above CAD1.3900 target CAD1.3945. There are $720 mln of options at CAD1.3880 and another stack for nearly $635 mln at CAD1.3900 that expires today. 

The Australian dollar peaked on Wednesday near $0.6765 before reversing lower. The losses have been extended to about $0.6675 today. Monday’s low is the next technical target, a little below $0.6665. The 20-day moving average is about $0.6680 and the Aussie has not closed below it since late November. 

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The greenback is threatening to breakout of the consolidative range against the Mexican peso. A move above the MXN18.03-04 area could spur US dollar gains into the MXN18.10-13 area. 

The PBOC fixed the dollar lower today after lifting the reference rate for two consecutive sessions on Wednesday and Thursday. It was set at CNY7.0128 today compared with CNY7.0288 at the end of last year. Against the offshore yuan, the dollar held barely above this week’s low seen Monday near CNH6.9780. 

The dollar recovered from yesterday’s low near INR89.7365 to INR90.2525 today. The week’s high was INR90.2925. News that the central bank reserves fell by $9.8 bln in the past week, the largest decline since November 2024 reflects the stepped-up effort to steady the exchange rate. 

Other markets

Equities are mixed today. Most of the large Asia Pacific bourses rallied today with the notable exception of Taiwan, Australia, and India. Europe’s Stoxx 600 is up about 0.5%, which if sustained, recoups the losses of the past two sessions. US index futures are firm. 

While JGBs softened and the 10-year yield rose almost two basis points, benchmark yields in Europe are narrowly mixed. The 10-year US Treasury yield is up a couple of basis points to almost 4.19%. 

Gold is consolidating between about $4453-$4485. The week’s high was slightly above $4500. 

February WTI has so far today been confined to the upper end of yesterday’s range. Today’s range is about $57.60 to $58.55. 

Data

As the week progressed, economists became more confident of firm, even if subdued, increase in US nonfarm payrolls. The median in Bloomberg’s survey now stands at 70k (up from 45k a week ago), with earnings expected to tick up and the unemployment rate to slip. If true, it will reinforce ideas that like last year, the Federal Reserve will begin this year with an extended pause following three rate cuts. That said, job growth has stalled, especially given Fed Chair Powell’s admission that the monthly figure may be overstated by around 60k. Assuming the median projection is correct, the three-month average increase in nonfarm payrolls would be about 10k. The reaction to the jobs data may be more subdued than usual as participants await the Supreme Court’s long-awaited verdict on the president’s use of emergency powers to levy broad tariffs. Although there are other ways to secure high tariffs, most measures require a greater role for Congress. 

Canada also reports on the December labor market. After employment jumped by 53.6k in November (all part-time positions, while losing 9.4k full-time jobs), a small pullback is likely in December. The unemployment rate peaked last August and September at 7.10% and fell to 6.5% in November (from 6.9% in October). The risk is that the unemployment rate rose in December (6.7%) and the participation rate likely increased. Wage growth may ease slightly to 3.8% from nearly 4% in October and November, which matched the 2025 high. It seems too early to re-evaluate ideas that the Bank of Canada is on hold for through at least the first half of the year.  

Mexico reported slightly lower December inflation than expected, but at 3.69% and 4.33% for the headline and core rates, respectively, it did not appear to impact policy expectations. Banxico is on hold for the next several months, at least. Today’s attention shifts to November industrial production. After falling from June through September, Mexico’s industrial output rose by nearly 0.75% in October and is expected to have crept up in November. 

The eurozone reported a 0.2% rise in November retail sales after October’s flat showing was revised to a 0.3% increase, consumption rose 1.1% in Q3, its weakest showing since Q2 24, and it appears to be off to a firmer start to Q4 25 but earlier today, France reported a 0.3% decline in consumer spending in November (0.5% in October) for a flat performance year-over-year. Separately, following on the heels of the surge in factory order reported yesterday, Germany announced a 0.8% increase in November industrial output, following a 2.0% jump in October (revised from 1.8%). France reports its industrial output slipped 0.1% in November.  

Japanese household spending surged 2.9% year-over-year in November nearly offsetting in full 3% decline in October. Yesterday’s Japan reported disappointing wage data, and the swaps market has reduced the amount of tightening discounted this year from about 48.5 bp on Monday and Tuesday to about 40 bp now, the lowest since Christmas. 

China reported that the December CPI rose 0.8% year-over-year (0.7% in November), which is the highest since February 2023. Many had attributed the deflation seen in half the months in 2024 to weak consumption, yet the rise in consumer prices in recent months does not appear to have coincided with a rise in consumption. Producer price deflation moderated to -1.9% from -2.2% in November. It is the least producer price deflation since August 2024 and may reflect the anti-involution campaign.