Dollar edged higher in early US session following the non-farm payrolls (NFP) report, but the overall momentum remains lackluster. Stock futures are flat, while 10-year Treasury yield is staging a slight recovery, suggesting a measured market response as traders hold back from aggressive positioning ahead of next week’s key economic events including US CPI and Fed Chair Jerome Powell’s testimony.
While headline NFP figure of 143k fell short of expectations, the dip in the unemployment rate to 4.0% and strong wage growth at 0.5% mom have reinforced the Fed’s cautious stance towards further policy easing. Markets now see over 90% chance that Fed will keep rates unchanged in March, while expectations for another hold in May stands at 70%.
Overall, despite today’s recovery, Dollar is still trading as the worst performer for the week, followed by Euro, and then Swiss Franc. Yen continues to sit at the top of the ladder, followed by Canadian, and then Aussie. Kiwi and Sterling are mixed in the middle.
In Europe, at the time of writing, FTSE is down -0.18%. DAX is down -0.06%. CAC is down -0.02%. UK 10-year yield is down -0.0014 at 4.489. Germany 10-year yield s up 0.0149 at 2.395. Earlier in Asia, Nikkei fell -0.72%. Hong Kong HSI rose 1.16%. China Shanghai SSE rose 1.01%. Singapore Strait Times rose 0.81%. Japan 10-year JGB yield rose 0.0357 to 1.303.
US NFP grows 143k, wages growth strong
US non-farm payroll job growth fell short of expectations but wage growth exceeding forecasts. Employers added 143k jobs, missing the 169k estimate and coming in below the 2024 monthly average of 166k. However, the downward surprise was offset by a significant upward revision to December’s number, which was adjusted from 256k to 307k.
Unemployment rate unexpectedly dropped from 4.1% to 4.0%. At the same time, the labor force participation rate ticked slightly higher to 62.6%, reinforcing signs of a still-active workforce. While the decline in headline job creation might signal a cooling labor market, the improvement in unemployment suggests that the slowdown is not yet severe.
The standout data point in the report was wage growth, with average hourly earnings surging 0.5% mom, surpassing the expected 0.3% mom increase. On an annual basis, wages rose 4.1% yoy, a sign that businesses are still competing for workers despite moderation in hiring.
Canada’s employment grows 76k, unemployment rate down to 6.6%
Canada’s labor market significantly outperformed expectations in January, with employment rising by 76.0k, far exceeding 26.5k forecast. The biggest job gains were seen in manufacturing (+33k, +1.8%) and professional, scientific, and technical services (+22k, +1.1%).
The unexpected strength in employment was further reinforced by decline in the unemployment rate from 6.7% to 6.6%, beating market expectations of a slight uptick to 6.8%.
Despite the surge in hiring, wage growth showed signs of moderation, with average hourly earnings rising 3.5% yoy, down from 4.0% yoy in December. Total actual hours worked rose 0.9% mom, with a 2.2% annual increase.
IMF backs BoJ’s gradual rate hikes, sees policy rate moving toward neutral by 2027
Nada Choueiri, deputy director of IMF’s Asia-Pacific Department and mission chief for Japan, stated that IMF remains “supportive” of BoJ’s current monetary policy course. She emphasized that rate hikes should be implemented in a gradual and flexible manner to ensure that domestic demand continues to recover.
Choueiri projected that BoJ’s policy rate could rise “beyond 0.5%” by the end of this year, with a longer-term path toward the “neutral level” by the end of 2027.
IMF estimates Japan’s neutral rate to be within a band of 1% to 2%, with a midpoint of 1.5%.
Also, IMF maintains an optimistic outlook for Japan’s economy, forecasting 1.1% GDP growth in 2025, supported by increasing wages and stronger consumer spending.
Given these projections, IMF expects BoJ to continue its tightening cycle in a controlled manner.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.0355; (P) 1.0381; (R1) 1.0410; More…
EUR/USD dips mildly but stays well inside range of 1.0176/0531. Intraday bias remains neutral and more consolidations could be seen. Strong resistance is expected from 1.0531 to limit upside. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, sustained break of 1.0531 will rise the chance of bullish reversal and turn bias back to the upside for stronger rally.
In the bigger picture, immediate focus is back on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, strong support from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.
