USD: Packed data week will test dollar’s rebound
The macro data are sending mixed signals that challenge prior convictions about the cycle, but the pattern is consistent with a K shaped economy. Services and manufacturing both show stabilization to start the year, with the January ISM Services PMI holding at 53.8 and the ISM Manufacturing PMI rising to 52.6, the latter’s first expansionary reading in a year. At the same time labor demand looks softer, as private payrolls rose by only 22,000 in January and job openings slipped to about 6.5 million in December. That divergence aligns with a K shaped backdrop in which high income consumption and continued investment in artificial intelligence sustain demand and productivity while trade exposed and middle income segments face tighter hiring and tariff related price pressures, themes Fed officials have flagged in recent communications.
Against that backdrop San Francisco Fed President Mary Daly has emphasized labor market risks even as she supported the Federal Open Market Committee’s decision on (Jan 28) to hold the policy rate at 3.50 to 3.75 percent. In last week remarks she said she could have made a case for easing a little more and kept the door open to additional cuts if hiring weakens, which is directionally consistent with our view that last week’s job readings do not materially change the policy path and that the committee will put more weight on near term inflation data. That stance also fits with a committee that cut three times last year and then paused in January to reassess, a sequence that leaves incoming prices data as the swing factor for the next move.
Vice Chair Philip Jefferson has articulated the same bridge from growth resilience to policy patience. Last week he described himself as cautiously optimistic that disinflation will resume as tariff pass through fades and productivity remains firm, and he said the current stance is broadly within the neutral range with a bias to wait for clearer evidence before easing again. That framing matches our baseline that inflation prints will dominate the near term reaction function while officials acknowledge that tariffs, sticky goods prices, and a gradually softer labor market have complicated the last leg of disinflation.
The heavy data week ahead is going to test last week’s Dollar recovery, with the Dollar Index hovering near a two-week high. The three market moving releases arrive in quick succession: retail sales on (Tue, Feb 10), NFP on (Wed, Feb 11), and the January CPI on (Fri, Feb 13). January CPI often runs firm because price lists reset and seasonal factors can under adjust, and several desks are flagging an unusual early year rise in core goods prices in online data. The Bureau of Labor Statistics will also publish annual benchmark revisions alongside the (Feb 11) jobs report, following advance guidance that marked down the twelve months through March 2025 by about 911,000, which raises the risk that several 2025 payroll months turn negative after re benchmarking. In all, we do not think the latest JOLTS estimates shift the policy outlook. Our base case remains that the FOMC focuses on the next inflation prints and, provided price pressures ease, delivers 25bp cuts in (June) and (December), while monitors subsequent labor reports for any deterioration in conditions.
EUR: Jobs test to steer EUR/USD
EUR/USD slipped about 0.3% into the weekly close as the market unwound the sentiment‑heavy euro bid built during the recent USD selloff, but paired some losses on Friday as the US macro story failed to gain traction in support of the greenback. The pair is now trading much closer to its fair value zone, which has drifted toward the upper 1.17 area. Meanwhile, overnight reports that Chinese regulators advised financial institutions to rein in their holdings of US Treasuries on market volatility concerns helped keep the pair sentimentally inflated into the week’s start, hovering in the 1.18 area.
The fair value anchor nudged higher through the week, helped by a US data flow that failed to deliver a decisive macro signal. Labour indicators softened again, keeping the broader picture uneven and limiting euro downside beyond a technical clean‑out. With US fundamentals still muddled, EUR/USD remains gravitationally pulled toward 1.18 until US jobs and inflation prints this week offer clearer direction.
On policy, the ECB held steady as expected. Lagarde’s neutral tone reinforced the idea that eurozone resilience – and limited concern about currency‑driven disinflation – keeps the policy stance firmly in wait‑and‑see mode. That restored neutrality shifts the spotlight back to the US side of the rate differential, just as the FOMC’s recent labour‑market optimism faces a reality check.
This backdrop will be quite instructive this week in delineating short‑term EUR/USD price action, with the US jobs report set to either challenge or validate the FOMC’s more upbeat labour market outlook, triggering a more pronounced repricing of near‑term policy expectations in turn. An above‑consensus result would likely pull the pair back below 1.18 as rate differentials re‑widen in favour of the greenback. That said, with markets having priced in a hawkish baseline from this month’s Fed policy meeting, any softer‑than‑expected major US data release in the coming weeks could carry a heavier bullish impact on EUR/USD.
CAD: Mixed jobs data anchors USD/CAD
A light Canadian economic calendar leaves the CAD vulnerable to heavy US data and global risk sentiment. To start the week, the CAD is trading near 1.36; despite disappointing domestic employment data, the USD/CAD pair failed to push higher.
Markets are opening with a softer Greenback on expectations of weak US labor data, though a firm CPI print could still complicate the Fed’s path. Adding pressure to the USD, Treasuries extended losses after reports that Chinese regulators advised financial institutions to rein in their US bond holdings due to market volatility.
Digging deeper in the labor market report from last Friday, reveals structural softness that validates the market’s hesitation to pick a direction. Wage growth cooled to 3.3% year-over-year, missing the 3.7% consensus, and private sector employment shrank by 52,000, signaling weaker business demand. With employment falling in key economic engines like Ontario (-67,000) and manufacturing (-28,000), the data paints a picture of an economy that is rebalancing rather than collapsing. This ambiguity leaves the Bank of Canada with little pressure to drastically alter its course, keeping the USD/CAD anchored in its current consolidation pattern as traders await a clearer catalyst.
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Calendar: February 9 – 13
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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.
