- January’s job growth could dip below 200K.
- The labor market remains strong overall.
- USD/JPY in bearish mode; a single rate cut still provide support.
The first Nonfarm Payrolls (NFP) report of the year –and the last of Biden’s era –will be published this Friday, making it a key event for traders. Trump’s escalating-de-escalating tariff policies have dominated market sentiment, this jobs report could still fuel fresh volatility.
Next Fed rate cut on hold
While a risk-off mood could stay in play as a US-China trade war is on hold and investors are uncertain about how soon and if trade negotiations between the US and its neighbors Mexico and Canada will bear fruit before the monthly deadline, fundamentals may take center stage in the coming sessions. The Fed kept interest rates steady after three consecutive cuts – starting with a bold 50bps reduction in September – but left traders wondering when the next move will take place.
Futures markets are pricing in 46bps of rate cuts by year-end – almost two additional cuts – but recent Fed commentary suggests the central bank may not rush to further ease monetary policy. With inflation expectations turning higher and economic indicators holding firm, the Fed may hesitate to drive interest rates lower. Following the stickiness’ in December’s core PCE price index, the ISM manufacturing PMI survey for January suggested that inflation pressure remains alive, and the economy is growing at a heathy pace, with the manufacturing sector finally contributing to the expansion after remaining stagnant for two years.
What to watch on Friday
The NFP report is projected to show that 170K new jobs were added in January – a slower pace than December’s 256K. However, the unemployment rate is expected to hold near historic lows at 4.1% , and average hourly earnings may tick down to 3.8% from 3.9% previously, staying within the 2024 range.
Historically, January has delivered strong job gains above 200K, both pre-pandemic and in the past two years. A downside surprise could spark a dollar sell-off, pushing traders to fully price in a second rate cut – especially if the unemployment rate rebounds and wage growth slows at a faster pace. In this scenario, USDJPY could accelerate its decline, breaking below the 200-day EMA at 152.17. A breach of the 151.50 support level could open the door for a drop towards 149.10.
In the event of a classic stronger-than-expected report, showing more than 200k new jobs, the odds of a second rate cut could diminish, offering relief to USDJPY. However, a rally towards the constraining 20-day exponential moving average at 155.20 remains to be seen, especially as Japanese wage data keeps a rate hike by the BoJ on the table.
The bigger picture
The Fed is likely to stay on hold unless inflation moves convincingly towards its 2.0% target and the outlook on fiscal and trade policies becomes clearer. While the total number of rate cuts for 2025 remains a puzzle, a single cut could stay in play, even if Friday’s jobs report beats expectations by a wide margin as the year has just started. In such a scenario, the U.S. dollar could advance, particularly against the European and antipodean currencies, which are vulnerable to a relatively more aggressive monetary easing.