Dollar little changed post US jobs data
Yesterday’s US jobs report was a good deal stronger than expected – the economy added a larger than forecast 130k jobs in January and the unemployment rate nudged down for a second month running – prompting a paring back of Fed rate cut expectations, with the market more than pricing out what it had priced in following Tuesday’s weaker than expected retail sales data. The reaction in FX to the data was fairly muted however. The dollar chalked up very modest gains against the euro and sterling (relative to the levels prevailing just before the release of the data) and, following a brief spike higher, resumed its descent against the yen. EURUSD and GBPUSD are trading at $1.1875 and $1.3635 respectively this morning, while EURGBP remains just above £0.87. GDP data for Q4 2025 in the UK released a short while ago were a little softer than expected, but with little impact on the pound so far.
The market has pushed back out the timing of the next Fed rate cut to July following the jobs data, from June, and now sees about 50bps worth of cuts in total this year, versus circa 60bps previously. This contributed to a rise in US bond yields yesterday, with 2-year yields increasing by about 6bps and 10-year year yields up around 4bps. German and UK yields, meanwhile, were marginally lower on the day. In equity markets, both US and European stocks ended the day largely unchanged.
The UK economy grew by just 0.1% q-o-q in the final quarter of 2025, according to this morning’s GDP release, the same as in Q3, with consumer spending increasing again in the quarter but business investment and exports both declining from Q3. On an annual basis, GDP was up 1.0% on Q4 2024 with growth for 2025 as a whole averaging 1.3%, up slightly from 1.1% in 2024. The economy finished 2025 on a soft note too, with the monthly data showing GDP up 0.1% in December (from November).
The US economy added 130k jobs in January, well ahead of expectations (+68k), following an increase of 48k in December, while over the three months to January employment growth rebounded to +73k a month from -45k a month over the three months to October. The unemployment rate fell for a second month in a row in January, to 4.3%, despite an uptick in the labour force participation rate, while y-o-y hourly earnings growth was unchanged at 3.7%. Overall, the data underscore the Fed’s view that the labour market is stablising, suggesting it will sit on its hands for a while now as far as interest rates are concerned.
Looking to the day ahead, it is pretty quiet on the economic data front with weekly jobless claims and second-hand home sales due in the US. There are a few Fed and ECB members scheduled to speak over the course of the day.