Forex today: Improved risk sentiment sends high-beta on the march, stocks up and dollar mixed

There was an additional feed of headlines with Fed Chairman Powell speaking briefly on the economy at the AEA event. Powell effectively rate policy on hold, for the time being, saying the Fed will evaluate developments in the economy, financial markets and abroad in coming months - (Stock markets took comfort from his words rallying hard to end the day several hundreds of points higher).

As for the US non-farm payrolls, it rose 312k in December, smashing expectations of 184k.  The unemployment rate was 3.9%. The average hourly earnings rose 3.2%, and the participation rate rose 0.2 to 63.1%.  

Elsewhere, Washington and Beijing announced that they would hold vice-ministerial level negotiations over trade in the Chinese capital early next week. The talks will mark the first face-to-face meeting since Donald Trump, and Xi Jinping met at the G-20 meeting in December and agreed to a temporary truce on tariffs.

In all of that, fixed income markets sold off and the yield curve re-steepened. The yield on the US 10-year note rose 11bps to 2.67%. The dollar was broadly lower after Fed chair Powell comments whereby a potentially more ambiguous policy process diminishes the dollar bull case - with Sino/US relation sentiment finding traction in the market as well, high-beta and EM FX goes bid. 

The euro was unable to fully capitalise on the Powell comments given the strong jobs data and eurozone PMIs coming in soft. Sterling was the outperformer with UK PMIs although markets should be nervous to stay long leading up to the Brexit vote later on this month.  USD/JPY rallied with higher stocks although burnt bulls from the sharp sell-off earlier in the week are licking their wounds which limited the upside. Commodities were mostly higher which lifted the Aussie and Cad making bull weekly reversals on the charts. Gold dumped on more positive sentiment and the firmer greenback. 

Key notes from US session:

• Wall Street closes sharply higher, Nasdaq gains more than 4%

Week ahead:

• FOMC Minutes, BoC Interest Rate Decision, Riksbank Minutes, ECB Minutes, UK Parliament Returns, US CPI, UK GDP, US ISM non-Mfg PMIs, Eurozone Unemployment Rate, China CPI.