1.0 Executive Summary
Market Sentiment: Risk appetite appears mixed to cautious as markets digest a "noisy" US jobs report that combined a strong headline beat with massive negative revisions to prior data. While the US dollar found support from rising yields, the standout performer was the Japanese Yen, which strengthened on a "Buy Japan" theme despite the robust US payrolls. Geopolitical tensions in the Middle East and uncertainty regarding US trade policy continue to underpin volatility. Key Themes:
US Labor Market Ambiguity: Jan NFP smashed estimates (+130k vs +70k), but 2025 revisions wiped out nearly 900k jobs, complicating the Fed's path [Saxo, GS].
JPY Resilience: Hedge funds have flipped bullish on the Yen, shrugging off the strong US data, driven by political stability under PM Takaichi [Bloomberg, Nomura].
Central Bank Divergence: The RBA remains hawkish (Hauser warnings), while the Fed's rate cut timeline has been pushed back to July [BNY, Bloomberg].
2.0 USD
Macro View & Fed Policy:
The US Dollar traded with a mixed tone, supported by a repricing of Federal Reserve expectations following the January Non-Farm Payrolls (NFP) report. The headline number came in at 130,000, nearly double the consensus forecast of roughly 70k, with the unemployment rate dipping to 4.3% [Saxo, Bloomberg]. However, the bullish signal was heavily diluted by significant negative benchmark revisions to 2025 payrolls, which Goldman Sachs (GS) notes may create "noise" in the data interpretation [GS]. Saxo Bank highlights that these revisions reduce nonfarm payrolls by 862k as of March 2025, raising doubts about the sustainability of the reported growth and signaling a potentially weaker underlying labor market [Saxo].
Bank Views:
Goldman Sachs (GS): Prior to the release, GS had positioned for a weaker print (45k), citing "noise" from the birth-death model updates. Following the data, their research desk notes that while the headline is strong, the "talking down" of NFP numbers by officials regarding immigration crackdowns and productivity suggests the market may look through the headline strength. They observe a "bull flattening" in rates, expressing a view that macro data will turn softer ahead [GS].
J.P. Morgan (JPM): Looking ahead to the critical CPI print on Friday, JPM's trading desk suggests a "Goldilocks" environment may still be in play. They place a 70% probability that the S&P 500 will rise if the CPI comes in close to or below estimates, seeing potential for a 1.75% rally if inflation ebbs significantly. Conversely, a "hot" report (>0.4% MoM) could trigger a drop of up to 2.5%, though they view this scenario as low probability [Bloomberg, JPM].
MUFG: The bank notes that the DXY remains supported as US Treasury yields rose across the curve (2-year yield up ~6bp). Fed funds futures have pushed the expectation for the next rate cut from June to July. However, they highlight that the "upside surprise" in payrolls contrasts sharply with other softer labor indicators, such as the JOLTS report and private sector payroll gains [MUFG].
Sectoral breakdown: Job gains were concentrated in healthcare (+82k) and social assistance (+42k), while federal government employment fell by 34k, reflecting the new administration's aggressive cuts [Argus, Saxo].
3.0 G10 Currencies
Japanese Yen (JPY):The Yen has decoupled from US rates, strengthening even as US yields climbed. Nomura reports a significant shift in sentiment, noting that hedge funds have "reversed course" and are ramping up bets on a stronger Yen. They observed trading volume in dollar-yen put contracts running 50% higher than calls, signaling a rush to hedge downside risk in USD/JPY [Bloomberg, Nomura]. Goldman Sachs (GS) attributes this to the "Buy Japan" theme following Prime Minister Takaichi’s supermajority win; the narrative has shifted from "aggressive fiscal = weak JPY" to a view that the government now has enough political capital to avoid reckless fiscal spending, allowing the JPY to unwind its fiscal risk premium [GS].
Australian Dollar (AUD):The Aussie Dollar outperformed, trading above 0.7100, its highest level since February 2023 [BNY]. BNY notes this move is underpinned by markets pricing a ~70% chance of another 25bp RBA hike in May. This view was reinforced by RBA Deputy Governor Andrew Hauser, who stated that inflation remains "too high" and that the central bank cannot allow it to persist [BNY, MUFG]. MUFG maintains a positive outlook on the AUD, noting it benefits from widening policy divergence with other G10 banks like the BoE, which is expected to cut rates soon [MUFG].
British Pound (GBP): Citi maintains a bearish medium-term outlook for Sterling, advising that the currency’s "most vulnerable moment" is two months away. Their strategists forecast a drop to 0.88 EUR/GBP by the end of June, citing a "double whammy" of political risks surrounding local elections in May and expected BoE rate cuts. Citi suggests that selling pressure will likely ramp up from March onwards [Bloomberg].
Canadian Dollar (CAD): TD Securities expects the Bank of Canada’s upcoming "Summary of Deliberations" to deliver a nuanced message. They anticipate the BoC will acknowledge that monthly activity has cooled into 2026 and will likely downplay concerns over stronger headline CPI given the softness in core measures. The focus remains on the "limitations" of monetary policy in addressing structural headwinds [Others].
Swiss Franc (CHF):The Franc is seeing "exceptional demand" as a safe haven, brushing off threats of SNB intervention. It has reached its strongest level in over a decade against the Euro and Dollar, driven by investors seeking alternatives to the US Dollar amid trade war fears [Bloomberg].
4.0 Asian Currencies (EM Asia)
General Trends:
Asian currencies broadly strengthened against the USD, anchored by the firmer Japanese Yen [MUFG]. MUFG suggests that against a backdrop of a generally softer US dollar trend (despite the NFP blip), Asian currencies are likely to continue strengthening. They retain a positive outlook specifically on the Singapore Dollar (SGD) and Malaysian Ringgit (MYR), underpinned by continued RMB stability [MUFG].
Chinese Yuan (CNY):Data indicates persistent deflationary pressure. Nomura reports that China's CPI inflation fell to 0.2% YoY in January (down from 0.8% in Dec), heavily distorted by the Lunar New Year timing. However, they note that PPI deflation eased to -1.4% YoY (from -1.9%), driven by improvements in manufacturing and raw material sectors [Nomura, Saxo]. Goldman Sachs (GS) presents a unique macro view, describing China consumption as the "ultimate anti-AI trade"—suggesting that an AI boom reduces the urgency for Beijing to boost consumption, whereas an AI bust could trigger powerful stimulus [GS].
Indonesian Rupiah (IDR): MUFG highlights that Indonesia enters 2026 with increased policy and market uncertainty despite solid growth. Moody’s has revised the sovereign credit outlook to negative, and MSCI has raised concerns over equity investability. The Rupiah remains under pressure due to these specific policy risk premia. MUFG expects IDR weakness to persist in H1 2026, with monetary policy likely remaining focused on stability to avoid further currency depreciation [MUFG].
Indian Rupee (INR):While specific INR spot moves were muted, the broader context of oil prices remains a key risk. Platts notes that Middle East tensions and the US-Iran nuclear talks are driving volatility in oil, which typically weighs on the INR. Additionally, there are reports of decreased Russian crude imports to India (down to 1.2-1.3m b/d) and increased scrutiny on vessels carrying Iranian crude, which could impact India's import bill [Platts].
Korean Won (KRW):The Won gained approximately 0.7% against the US dollar, tracking the Yen's strength. The currency remains sensitive to the broader "tech recovery" theme in Asian equities [MUFG].
Comments