US jobs report the focus for today
While yesterday’s US economic data, including retail sales, were softer than forecast, prompting a firming of expectations for further Fed rate cuts, the dollar had something of a mixed performance. It shed another 1% or so against the yen, which continued to build on its post-election gains, but treaded water for the most part against the euro and sterling. Ahead of today’s key jobs report in the US, which will further shape expectations for Fed policy, EURUSD and GBPUSD are trading at around $1.19 and $1.3680 respectively, both largely unchanged from yesterday morning’s levels. EURGBP isn’t doing much either as it continues to hover just above the £0.87 level.
Following yesterday’s economic data, the market now sees about a 50% chance of a 25bps rate cut at the Fed’s next but one meeting in April and is fully pricing in a cut at the June meeting. US bond yields fell as rate expectations firmed, declining by 4-7bps across the curve. German and UK yields were also generally lower on the day, by around 2-4bps. The soft US economic data weighed a little on equity markets, with the S&P 500 and the Stoxx Europe 600 both ending the day marginally in the red.
US retail sales were a good deal weaker the forecast, coming in flat in December (versus an expected increase of 0.4%) having risen by 0.6% in November. Post the data, the Atlanta Fed has lowered its estimate of the ‘run rate’ for the growth in overall consumer spending (including spending on services) in Q4 2025 to 0.6% (q-o-q), which compares to growth of 0.9% in the third quarter of last year
The other notable US data release yesterday was the Employment Cost Index (ECI) for Q4 2025. It rose by 0.7% q-o-q, versus +0.8% expected, with the y-o-y increase easing to 3.4%. The latter is above the average rate of increase in employment costs that prevailed in the years immediately preceding the pandemic, but is in line with the pre-global financial crisis period in the 2000s, and hence (more) consistent with meeting the Fed’s 2% inflation target once the impact of higher tariffs washes out of the current inflation readings.
For today, the key economic data release is the employment report for January in the US. The consensus expects the economy to have added circa 65k jobs last month, following +50k in December, with the unemployment rate expected to remain steady at 4.4% and the y-o-y growth in hourly earnings seen easing to 3.7% from 3.8%. There’s little or nothing of note date-wise due elsewhere, while a few Fed and ECB members are due on the wires over the course of the day.