USD: Labor market remains fragile
U.S. private-sector hiring slowed significantly in January, with companies adding only 22,000 jobs—well below the 45,000 projected by economists. This underwhelming performance, coupled with a downward revision of December’s figures to 37,000, suggests a cooling labor market as the year begins. While broader economic activity has shown signs of picking up, these ADP Research figures highlight a recovery that remains notably fragile.
Treasury yields ticked lower across the curve while the U.S. dollar pared earlier gains. The sharp miss against Bloomberg survey estimates underscores a persistent disconnect between general economic resilience and the pace of private-sector payroll growth.
CAD: Factory stability meets currency headwinds
The Canadian manufacturing sector kicked off 2026 on a surprisingly resilient note, finally breaking a year-long losing streak to post a headline PMI of 50.4. This modest recovery signals that production levels have stabilized after 11 months of contraction, with firms even beginning to hire again in anticipation of better days ahead. There is a palpable sense of cautious optimism as business confidence hit a three-month high, driven by hopes for a broader economic pickup later in the year, although manufacturers remain wary of the road ahead.
Despite this stabilization, the sector isn’t out of the woods, as trade tensions and rising costs continue to act as a drag on momentum. Tariffs remain a significant disruptor, particularly for trade with the U.S., sending the cost of raw materials like steel and aluminum soaring and forcing companies to hike their own prices to protect margins. While the return to growth is a welcome signal, the combination of stubborn inflation and trade uncertainty suggests manufacturers will need to remain agile to navigate the friction likely to persist through 2026.
This domestic friction has translated into a lackluster performance for the Canadian dollar, which is notably lagging its G10 peers despite the improved factory data. Investors are currently favoring high-yield currencies and those exposed to the precious metals boom, leaving the Loonie in the dust while the “Scandies” and “Antipodeans” surge. Currencies like the Australian Dollar have outperformed to start the year, bolstered by the RBA’s recent decision to raise rates and a global appetite for yield that Canada simply isn’t matching right now.
While commodity currencies like the AUD and NZD are rallying on gold spikes and recent RBA rate hike, the CAD is being bypassed. Even with manufacturing finding its footing, the lack of a compelling yield advantage, direct exposure to the current metals supercycle and the continued trade friction with the US has left the Canadian dollar stuck in neutral while its peers race ahead.
EUR: From global moves to domestic risks
Yesterday was a relatively quiet session for EUR/USD, with the pause in US data releases this week stalling the recent USD driven momentum that had pressured the pair. It therefore consolidated just above the 1.18 mark, which acted as a key short-term support level.
Where the euro did struggle was against commodity-linked currencies. Precious metals rebounded after their steepest drop in decades, lifting metals centric FX such as ZAR and AUD, with the latter also supported by a hawkish RBA. The move spilled over into the broader commodity beta complex, including NOK, leaving the euro softer on the crosses.
For the remainder of the week, focus shifts to domestic developments, with today’s preliminary release of eurozone inflation expected to tick down to 1.7% in January from 2.9% in December. While we believe it is premature for the ECB to directly reference possible intervention on the back of recent euro’s strength at the policy meeting tomorrow, today’s inflation print will be instructive for how markets may interpret any comment on this topic. The expected low headline figure is mostly a base effect, but core is where attention should fall. Should core dip below December’s 2.3% reading – perhaps a services-led move – markets may place more weight on any sign of openness from Lagarde toward additional easing linked to a stronger euro. Our base case however remains a muted euro reaction following the press conference.
For today, and over on the US side, we will also keep an eye on the ADP release, one of the only reads on the US labour market this week as a result of the US government shutdown, which ended yesterday (let’s not forget ISM services survey today and the Challenger layoffs tomorrow too). Any significant surprise could see a test of 1.18, although we remain doubtful of any substantial break this week.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: February 2 – 6
All times are in EST
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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.
