The November US jobs release will take center stage today. Markets are looking for another 500k+ increase in the headline number, a decline in the unemployment rate and an increase in hourly earnings. Put together, this should all keep short-dated US rates supported on the view that the Fed could exit super-loose policy more quickly. Any sharper than expected drop in the unemployment rate or sharper rise in average hourly earnings could drive the dollar higher today.
After strong growth numbers for 3Q earlier this week, Canada releases the November jobs report today. The pace of hiring was understandably slower in October following the very strong summer gains, and markets are likely expecting another read around +30k today. A greater focus is being put on wage growth, which rose to 2.1% in October: more indications of upward pressure on wages will easily fit the narrative that inflation in Canada should prove quite persistent.
The Bank of Canada, which holds a policy meeting next week, is set to continue facing the pressure from domestic data – although the developments on the virus side naturally hold the key for the policy response in the near term. Markets have changed their expectations in Canada over the past week, shifting from pricing a March rate hike to seeing the first move in June. This has contributed to keeping CAD under pressure amid the unsupportive risk environment and the oil sell-off. Most analysts suggest that the USD/CAD can gradually decline towards 1.2600 into year-end.
EUR/USD is sitting exactly in the middle of what could prove a multi-week 1.1180-1.1380 trading range - bordered by Omicron and Fed news. While strong nonfarm payrolls report today could see the lower end of that range tested, investors may be reluctant to chase the move too much lower for fear of some more damaging Omicron news or uncertainty about the European Central Bank's attitude to inflation and ending emerging QE schemes when it meets on Thursday 16 December. In the meantime, news of further lockdowns across continental Europe is likely to put pressure on the euro and drive near-term weakness.
The Bank of England's broad trade-weighted sterling index has traded in a tight 80.50-82.50 range since March. It now sits not far from mid-range. The BoE's rate decision of 16 December will no doubt have something to say about this - i.e. generating some independent GBP move. Until then, expect other FX drivers to take charge - probably dollar strength - such that the GBP will stay vulnerable to dropping to the 1.3150/3200 area.
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