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Forex Today: Euro rally takes a break ahead of US jobs report

Here is what you need to know on Friday, February 4:

The euro registered impressive gains against its major rivals on Thursday on European Central Bank (ECB) President Christine Lagarde's hawkish comments. The shared currency is staying relatively quiet early Friday as investors await the US January Nonfarm Payrolls (NFP) data. Ahead of the US jobs report, December Retail Sales will be featured in the European economic docket. Later in the day, the January Unemployment Rate data from Canada could have a significant impact on the loonie's market valuation.

In January, NFP is expected to rise by 150,000 following December's disappointing increase of 199,000. Market participants will also keep a close eye on the wage inflation reading, which is presented as the change in the Average Hourly Earnings. The US Dollar Index lost nearly 0.7% on Thursday and stays within a touching distance of 95.00. 

Nonfarm Payrolls Preview: Win-win-win for the dollar? Low expectations, weak greenback point higher.

The ECB left its policy settings unchanged as expected following its February policy meeting. When asked about the market pricing of rate hikes, Lagarde refrained from rejecting the possibility of a rate increase in 2022 and provided a boost to the euro. Lagarde also said that inflation in the euro area was seen staying high for longer than expected. 

EUR/USD rose more than 100 pips on Thursday and was last seen trading at its highest level since mid-January near 1.1450.

On Thursday, the Bank of England (BOE) announced that it hiked its policy rate by 25 basis points to 0.5%. The policy statement revealed that four members of the MPC voted for a 50 basis points rate hike and the British pound gathered strength with the initial reaction. During the press conference, however, BOE Governor Bailey sounded very cautious on the economic outlook and didn't allow the GBP to preserve its bullish momentum.

GBP/USD ended up posting small daily gains on Thursday but stays in the negative territory below 1.3600 heading into the European session on Friday.

USD/CAD continues to trade in a relatively tight range below 1.2700. The Unemployment Rate in Canada is forecast to rise to 6.2% in January from 5.9% in December with the Net Change in Employment declining by more than 100K in that period.

Gold fell sharply on surging US Treasury bond yields on Thursday but managed to rebound above $1,800. The benchmark 10-year US Treasury bond yield holds above 1.8% after rising 3% on Thursday.

US January Nonfarm Payrolls Preview: Analyzing gold's reaction to NFP surprises.

Despite the negative shift witnessed in market sentiment on Thursday, Bitcoin rose modestly and continues to trade in the positive territory near  $38,000 early Friday. Ethereum is up more than 3% on the day, testing $2,800.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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