Feb 7, 2025
The dollar remains stable before the payroll report, while the pound rises.
The US dollar stabilized on Friday before the eagerly anticipated monthly jobs report, while the British pound rose following the Bank of England's recent policy meeting.
At 04:00 ET (09:00 GMT), the Dollar Index, which measures the dollar against a group of six other currencies, was down 0.1% at 107.465, staying well below Monday's peak of 109.88.
Dollar in a narrow range
The US currency traded within a narrow range on Friday, after a tumultuous week marked by significant news regarding US tariffs, as traders cautiously awaited the newest payroll figures for further insights into possible future monetary policy adjustments from the Federal Reserve.
The US economy is projected to have added 154,000 jobs in January, down from a spike of 256,000 in the previous month, with the unemployment rate expected to align with December's 4.1%.
"Much attention will be directed at annual benchmark revisions. Last year's preliminary revisions suggested that the Bureau of Labor Statistics had overestimated job creation by about one-third when cross-referenced with tax data. This indicates substantial issues with their model, and we anticipate significant changes to the monthly payroll figures," analysts at ING noted.
A robust labor market provides the Federal Reserve with more flexibility to maintain high interest rates for an extended period, a scenario which could hinder growth in the largest global economy.
Pound recovers after BOE cut
In Europe, GBP/USD rose by 0.2% to 1.2464, as the pound bounced back slightly after falling to 1.2370 on Thursday due to the Bank of England’s decision to reduce interest rates by a quarter of a percentage point.
The drop to 4.5% was in line with economists' forecasts, though two officials advocated for a larger cut amid a backdrop of weakening economic growth, with the central bank reducing its growth forecast for 2025 in its official estimates.
EUR/USD rose by 0.1% to 1.0397, with the euro strengthening despite indicators revealing ongoing struggles within the German economy.
Industrial production in Germany saw a larger than expected decline, falling by 2.4% from the previous month.
"Considering the potential downside risks for US payrolls, we expect a renewed increase in EUR/USD, aiming to retest the 1.044 highs reached on Wednesday," ING added.
Yen supported by interest rate hike expectations
In Asia, USD/JPY increased by 0.3% to 151.80, although the pair is still set to decline more than 2% this week, marking its largest weekly drop since November.
The Japanese currency was primarily supported by rising expectations that the Bank of Japan will have sufficient momentum to further increase interest rates in the months ahead. Strong data on wages and household spending contributed to these expectations, along with hawkish remarks from various BOJ board members.
The BOJ is anticipated to raise rates by at least 50 basis points, bringing them to 1% by the end of 2025.
USD/CNY decreased to 7.2871, with the onshore yuan weakening as markets reopened after the Lunar New Year holiday this week, influenced by the resurgence of trade tensions between the US and China.
Markets were closely monitoring any discussions between US President Donald Trump and Chinese President Xi Jinping.
At 04:00 ET (09:00 GMT), the Dollar Index, which measures the dollar against a group of six other currencies, was down 0.1% at 107.465, staying well below Monday's peak of 109.88.
Dollar in a narrow range
The US currency traded within a narrow range on Friday, after a tumultuous week marked by significant news regarding US tariffs, as traders cautiously awaited the newest payroll figures for further insights into possible future monetary policy adjustments from the Federal Reserve.
The US economy is projected to have added 154,000 jobs in January, down from a spike of 256,000 in the previous month, with the unemployment rate expected to align with December's 4.1%.
"Much attention will be directed at annual benchmark revisions. Last year's preliminary revisions suggested that the Bureau of Labor Statistics had overestimated job creation by about one-third when cross-referenced with tax data. This indicates substantial issues with their model, and we anticipate significant changes to the monthly payroll figures," analysts at ING noted.
A robust labor market provides the Federal Reserve with more flexibility to maintain high interest rates for an extended period, a scenario which could hinder growth in the largest global economy.
Pound recovers after BOE cut
In Europe, GBP/USD rose by 0.2% to 1.2464, as the pound bounced back slightly after falling to 1.2370 on Thursday due to the Bank of England’s decision to reduce interest rates by a quarter of a percentage point.
The drop to 4.5% was in line with economists' forecasts, though two officials advocated for a larger cut amid a backdrop of weakening economic growth, with the central bank reducing its growth forecast for 2025 in its official estimates.
EUR/USD rose by 0.1% to 1.0397, with the euro strengthening despite indicators revealing ongoing struggles within the German economy.
Industrial production in Germany saw a larger than expected decline, falling by 2.4% from the previous month.
"Considering the potential downside risks for US payrolls, we expect a renewed increase in EUR/USD, aiming to retest the 1.044 highs reached on Wednesday," ING added.
Yen supported by interest rate hike expectations
In Asia, USD/JPY increased by 0.3% to 151.80, although the pair is still set to decline more than 2% this week, marking its largest weekly drop since November.
The Japanese currency was primarily supported by rising expectations that the Bank of Japan will have sufficient momentum to further increase interest rates in the months ahead. Strong data on wages and household spending contributed to these expectations, along with hawkish remarks from various BOJ board members.
The BOJ is anticipated to raise rates by at least 50 basis points, bringing them to 1% by the end of 2025.
USD/CNY decreased to 7.2871, with the onshore yuan weakening as markets reopened after the Lunar New Year holiday this week, influenced by the resurgence of trade tensions between the US and China.
Markets were closely monitoring any discussions between US President Donald Trump and Chinese President Xi Jinping.