USD: US labor market caps weakest year since 2020
The December Nonfarm Payrolls (NFP) report delivered a underwhelming headline figure of 50,000, missing the expected 70,000 and cementing 2025 as a year of significant labor market cooling. For the full year, payrolls climbed by only 584,000, the weakest annual performance since the pandemic-plagued 2020 and a stark departure from the robust expansion seen between 2010 and 2019. The report’s underlying tone was further dampened by a 76,000 two-month cumulative downward revision, which dragged the three-month moving average into a 22,000 contraction. This suggests that despite the lack of a “cliff-edge” collapse, the labor market is at a virtual standstill, creating potential headwinds for consumer spending as we enter 2026.
Sectoral data highlighted a widening divergence between defensive industries and cyclical ones. Private payrolls were notably soft at just 37,000, while manufacturing experienced another month of contraction. Healthcare remained the primary engine of growth, adding 21,000 roles, though even this reliable sector has seen its monthly pace slow from the 2024 average. This softening is echoed in the broader JOLTS data, where job openings fell to a more than one-year low of 7.15 million. While a decline in layoffs to a six-month low provides some evidence of stabilization, the overall picture remains one of a “low-hire, low-fire” environment where companies are increasingly hesitant to expand their headcounts.
Despite the weak hiring numbers, the unemployment rate’s drop to 4.4% and resilient wage growth have complicated the Federal Reserve’s path. Average hourly earnings rose 0.3% for the month (3.8% annually), maintaining a roughly one-percentage-point lead over inflation and preserving worker purchasing power. However, this “stickiness” in labor costs combined with the lower jobless rate has effectively shut the door on a January rate cut, with interest rate swaps now pricing the probability at zero. After three cuts in late 2025, markets now anticipate the Fed will remain on hold until mid-2026, as officials wait for more definitive evidence of economic deterioration before easing policy further.
CAD: Loonie still under pressure even as resilient full-time job growth
Markets reaction was immediate following the dual employment releases, as the Loonie saw significant volatility with the USD/CAD pair moving up closer to the 1.39 level before settling down around 1.387. The intraday tick chart shows the exchange rate hitting a session high of 1.3889 at precisely 08:30 AM ET, coinciding with the data drop, before retracing to a last price of 1.3869. This movement was heavily influenced by the US Non-Farm Payroll (NFP) report, which missed expectations by adding only 50,000 jobs against a forecasted 66,000, triggering a timid softening of the US Dollar.
While the relative outperformance of the Canadian labor data against the lackluster US NFP print exerted downward pressure on the USD/CAD pair, the Loonie struggled to capitalize on these gains, remaining broadly defensive due to persistent underlying headwinds. While Canadian employment was technically little changed in December with a modest gain of 8,200, the underlying details were resilient; full-time employment surged by 50,000 (+0.3%), more than offsetting a decline in part-time work. Furthermore, although the Canadian unemployment rate rose 0.3 percentage points to 6.8%, the report highlights that this was driven by a larger participation rate (+0.3 points to 65.4%) as more people entered the market to search for work, rather than a lack of existing jobs. This contrast with the disappointing US hiring figures.
Given these conditions, the Bank of Canada (BoC) is widely expected to remain on hold at its next policy announcement. The cooling of average hourly wage growth—which slowed to 3.4% in December from 3.6% in November—alongside falling job vacancies suggests that labor-related inflationary pressures are continuing to ease. With the employment rate holding steady at 60.9% and employers reporting fewer difficulties in filling positions, there is little immediate pressure on the BoC to move interest rates. This “wait-and-see” approach is further supported by the stabilization of the labor market following a volatile 2025, allowing policymakers to evaluate the impact of previous cuts on the broader economy.
MXN: Mexico’s Super Peso refuses to flinch
Mexico’s headline inflation concluded 2025 on a cooling trend, with the National Consumer Price Index (INPC) recording an annual rate of 3.69% in December. This marks a notable deceleration from the 4.21% annual rate observed in December 2024, supported by a monthly increase of 0.28%. The primary downward pressure came from the non-core component, which decreased 0.16% in the month, largely due to a 0.66% drop in agricultural prices—specifically products like eggs and chicken which saw monthly declines of 4.11% and 1.30%, respectively. However, core inflation remains more persistent, rising 0.41% monthly to finish the year at 4.33%. This core pressure was driven by a 0.48% increase in services, highlighted by a sharp 19.89% monthly surge in airfare.
For the Bank of Mexico (Banxico), these results represent a critical milestone as headline inflation has finally returned to the central bank’s 3% (+/- 1%) target range at the close of the year. Despite this convergence, the “stickiness” of core inflation at 4.33%—which remains above the upper limit of the target—suggests that policymakers will maintain a cautious stance at their next meeting on February 9, 2026. While the headline data is encouraging, the internal debate at Banxico is likely to focus on the divergent paths between volatile agricultural goods and more entrenched service-sector costs. Consequently, the central bank is expected to prioritize verifying a sustained downward path for core prices before committing to further aggressive rate cuts, potentially favoring a “prudent pause” to ensure inflation expectations remain anchored within the target.
This cautious fundamental outlook is further reinforced by the technical performance of the Mexican Peso, which continues to trade with a strong bias against the U.S. Dollar. According to the latest market data, the USD/MXN pair is currently hovering around 17.98, positioned just above its 20-day simple moving average (SMA) of 17.97. The technical chart reveals a sustained downward trajectory for the pair, with the Peso remaining significantly stronger than its long-term resistance levels, including the 50-day SMA at 18.20 and the 200-day SMA at 18.76. With an RSI (14) of 44.05, the currency is neither overbought nor oversold, suggesting that the current appreciation has solid technical backing. This currency strength acts as a crucial “imported disinflation” mechanism that complements Banxico’s restrictive monetary policy, as a robust Peso keeps the cost of foreign goods low and helps the central bank maintain the headline inflation stability reported throughout December.
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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.
