USD: Surprise job gains send rates, dollar higher
The January 2026 Nonfarm Payrolls report delivered a stunning upside surprise, shattering consensus estimates and triggering an immediate repricing across markets. The headline number came in at 130,000 jobs added, double the economists forecast of 65,000, while the unemployment rate unexpectedly ticked down to 4.3% against expectations of 4.4%. This robust display of labor market resilience sent Treasury yields and the dollar surging as traders hastily adjusted their monetary policy outlooks. Consequently, markets have pushed back the timeline for the Federal Reserve’s next move; a 25-basis-point rate cut is now fully priced in for July, shifting back from the previously anticipated June timeline.
Beyond the headline shock, the internal details of the report underscore a labor market that is resilient rather than cooling down. Average hourly earnings rose 0.4% month-over-month, beating the 0.3% estimate, while the labor force participation rate edged higher to 62.5%. Even the struggling manufacturing sector moved into positive territory, posting a 5,000 job gain defying the forecasted loss of 7,000. Also, the rise in hours worked and wages, suggests that consumer spending power remains strong entering 2026.
However, while today’s numbers are better than expected, these figures fail to mask the reality of a fundamentally fragile labor landscape. The underlying trend remains fragile, evidenced by a massive annual benchmark revision that subtracted 862,000 jobs from previous totals, revealing that 2025 was far softer than originally reported.
CAD: USD/CAD jumps higher on surprise US job report
The USD/CAD surged toward the 1.36 handle following the surprisingly robust US Nonfarm Payrolls report for January. While market participants were largely positioned to confirm the labor market weakness that defined much of 2025, the unexpected strength in the monthly data caught investors off guard, sparking a rally in both the US Dollar and the Treasury yield curve. Although USD/CAD continues to trade below its short- and long-term moving averages, its recent downward momentum appears effectively capped by this shift in sentiment.
The focus now shifts to this Friday’s US CPI release, which will serve as the next major volatility catalyst for the FX market and provide essential clarity on the state of the US economy to start the year. An upside surprise in inflation would likely firm the US Dollar against all G-10 peers, potentially forcing the CAD to consolidate within the 1.35 to 1.36 zone. While today’s data has led markets to reprice the Federal Reserve’s next move toward July, our base case remains that the FOMC will stay focused on upcoming inflation prints. Provided price pressures continue to ease, we expect the Fed to deliver 25-basis-point cuts in June and December, while remaining vigilant for any further deterioration in subsequent labor reports.
EUR: Sentiment favours euro, US data eyed
A good portion of recent FX moves has been driven more by sentiment than hard data. The ongoing diversification away from US assets has helped the euro, which remains one of the most liquid alternatives in the G10 space, though the benefit hasn’t matched the scale seen back in 2025. Even so, policy uncertainty in the US continues to act as a headwind for the dollar, allowing EUR/USD to trade above our fair‑value estimate near $1.18.
That said, fundamentals may soon start reinforcing the sentiment‑led flow. US labour indicators softened last week and retail sales disappointed yesterday, prompting a dovish shift in Fed expectations. With the key US jobs report looming, the market is increasingly sensitive to any sign of slowing momentum — especially if it nudges the Fed toward a more accommodative stance into mid‑year.
Plus, the options market is signalling greater concern about EUR/USD continuing to rally than about it selling off. The EUR/USD options curve is showing a clear tilt to the right, meaning implied volatility is higher for EUR calls than for EUR puts. In plain terms, it means the market is paying more to protect against the euro going up than the euro going down. Traders are willing to spend more on options that would benefit from a stronger euro, especially on more extreme upside moves. That doesn’t mean the euro will necessarily rally though, it just shows where demand for protection is concentrated right now.
GBP: Pound under pressure, but GBP/USD plays its own game
As previously reported this week, UK political uncertainty, coupled with a dovish shift in Bank of England (BoE) expectations have been a drag on sterling sentiment. GBP is lower across the board, with the heaviest losses against JPY and NOK — though both currencies have their own supportive drivers. Interestingly, GBP/USD has been moving higher though, reinforcing the idea that this pair is trading more as a dollar story than a reflection of UK‑specific risk. In that sense, GBP/EUR remains the cleaner barometer of domestic political pressure, while GBP/USD is being driven primarily by shifts in US sentiment.
That makes today’s US jobs report pivotal. A softer payrolls print would likely see markets price a faster or deeper Fed easing cycle, putting renewed pressure on the dollar and offering further support to GBP/USD. But after the sizeable dollar moves seen late last week and into Monday, the risk of a counter‑move shouldn’t be dismissed.
Options markets underline the sense of anticipation. Overnight implied volatility has jumped to one of the highest levels in recent months, pointing to expectations of a larger‑than‑usual move — a little over a 0.5% swing in either direction. The skew in the options curve also shows investors paying more to hedge against GBP weakness than strength. That doesn’t guarantee such a move will occur, but it does highlight how traders are positioning ahead of the data. In short, markets are braced for a sharp reaction, with a slight bias toward guarding against GBP softness.
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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.
