USD: Jobs and judgements in focus
The US dollar is firming ahead of a high‑stakes Friday, with both the non‑farm payrolls (NFP) report and a potential Supreme Court ruling on President Trump’s tariffs on the radar. The greenback is grinding higher against major peers, supported by safe‑haven demand amid elevated geopolitical risks and a renewed rise in US yields after jobless claims undershot expectations and Challenger layoffs fell sharply.
Eyes now turn to Friday’s NFP, with consensus looking for a 66k gain and unemployment edging down to 4.5%. Recent Fed communication has been explicit: a softening labour market is the key trigger for further rate cuts in 2026. That makes today’s report especially consequential, with even small surprises likely to shape the policy narrative — and market pricing — in the weeks ahead. An upside surprise in payrolls could temper Fed easing bets and further strengthen the dollar. Positioning still leaves room for further USD upside too.
Tariffs on trial
Meanwhile, the US Supreme Court could rule as soon as today on the legality of President Trump’s tariff framework — a decision that betting markets increasingly expect the White House to lose. A ruling against the administration would put a wide range of levies, including the “reciprocal” tariffs on the EU, China and others, at risk of being struck down.
Such an outcome could lift the dollar too, as the labour‑market impact of tariffs has been more pronounced than the inflation effect, potentially prompting a hawkish repricing along the Fed curve. The latest US trade data also underline the stakes: a sharp drop in imports and a rise in exports pushed the deficit to $29.4bn, the smallest since 2009. That’s tariffs working as designed — and it hints at a trade‑related tailwind for 4Q growth.
In this sense, we think the bias leans to a modestly stronger dollar in the near term. Seasonality is also positive in January, and markets’ sanguine stance on geopolitics leaves risk assets and high-beta currencies exposed to re-escalations, both in Latam and potentially in Greenland.
However, once today’s twin risk events are out of the way, a further softening in oil prices could limit further USD upside as the US terms of trade weakens.
GBP: Structural headwinds persist
GBP/USD has now fallen for four consecutive sessions, slipping back below its 21‑day moving average for the first time since late November — a signal that the Q4 rebound from $1.30 to $1.35 may be running out of steam. The 100‑ and 200‑day moving averages in the upper $1.33s should offer solid layers of support though and may slow any further downside in the near term.
Indeed, a renewed push higher can’t be ruled out, particularly if the dollar begins to respond more clearly to softer oil prices. Sterling also benefits from a temporary vacuum in UK data and the fact that much of the bad news is already in the price, leaving GBP shorts stretched and crowded. That backdrop keeps the near‑term risk‑reward tilted toward further recovery, even if conviction on sustained strength remains limited.
However, the second half of January brings the first meaningful domestic catalysts, with inflation data later in the month set to be particularly important for shaping expectations around the Bank of England’s policy path. Markets are currently pricing fewer than two cuts, a stance that looks too conservative given the likely trajectory of disinflation and the lacklustre UK economic backdrop. For the consensus to shift decisively in favour of the pound, markets will need clear evidence of an improving UK growth outlook and sticky inflation.
Over the longer term, whilst the recent Autumn Budget helped calm immediate concerns about the public finances, the UK’s high and rising debt burden remains a structural vulnerability. Should tax receipts disappoint or welfare spending rise, borrowing requirements would increase again. Questions also linger over the revenue impact of narrower tax‑raising measures, the lack of spending restraint, and the absence of growth‑enhancing reforms.
Complicating matters further, debt issuance is rising across the developed world, intensifying competition for global capital. With UK gilt yields already elevated relative to peers, a renewed focus on the UK’s debt trajectory represents a key risk for sterling in the year ahead.
Jobs jolt poised to shake EUR/USD
EUR/USD closed lower for a third consecutive day, breaching the 100‑day moving average yesterday. A slate of positive US data, including lower‑than‑forecast Challenger layoffs and solid jobless claims, helped ease concerns about a pickup in layoffs and improved sentiment ahead of today’s jobs report.
This week’s releases have nonetheless delivered mixed signals. Doves will likely highlight softer‑than‑expected ADP employment change and JOLTS openings, as well as the weaker ISM Services prices‑paid component and unit labour costs, as justification for further Fed easing. This helps explain why the pair has also hesitated to break below the 50‑day moving average at $1.1648, despite repeatedly testing it.
Today’s NFP, alongside the unemployment rate, will help consolidate a more unanimous view of the state of the US labour market and shape expectations around additional Fed easing in the near term.
We see downside risks for EUR/USD on a solid NFP print today, with $1.1625 and $1.16 as key levels to watch.
Market snapshot
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Calendar: January 05-09
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
