- NFP take center stage amid DOGE layoffs
- ECB decides monetary policy after CPI data
- Canada jobs report and RBA minutes also on tap
Will DOGE layoffs weigh on NFP?
The US dollar traded on the back foot against some key major counterparts during the first half of the week, as investors have turned more dovish than the Fed itself for the first time since the December FOMC decision. That said, renewed tariff rhetoric by US President Trump encouraged a strong rebound on Thursday.
Following the weakness in last week’s preliminary US S&P Global PMIs for February, as well as the drop in the University of Michigan consumer sentiment index for the month, investors are now penciling in around 60bps worth of reductions this year. This is more basis points worth of reductions than the 50 projected in the December dot plot.
However, with US President Trump ramping up his tariff threats against the US’s main trading partners, such as China, Canada and Mexico, it is hard to envision a clear road map as the imposition of tariffs is a major upside risk to already sticky inflation. After all, most FOMC officials who have expressed their view lately seem to be favoring a wait-and-see approach.
With all that in mind, apart from any new tariff headlines next week, dollar traders are likely to also lock their gaze at the ISM manufacturing and non-manufacturing PMIs on Monday and Wednesday, respectively, but the highlight is likely to be Friday’s NFP data. The January report revealed lower-than-expected jobs growth, but this was due to temporary factors, such as the wildfires in California and the cold weather across the country. Overall, the decline in the unemployment rate, the upward revision in the December print, and the sticker-than-expected wage growth suggest that the labor market remains strong.
As Elon Musk’s Department of Government Efficiency (DOGE) continues to cut federal jobs, February’s NFP print may also come in on the soft side. However, the subcomponents of the report include government payrolls and any weakness there would not come as a surprise.
Should the other sectors point to a reacceleration in employment growth, it could be an indication that the private sector was strong enough to absorb the employees who lost their jobs and thus, the dollar could benefit.
Investors may start betting on fewer rate cuts again for 2025, especially if the ISM prints earlier in the week do not corroborate the weakness in business activity revealed by the S&P Global prints. The opposite may be true if any potential weakness in the labor market is more widespread, rather than concentrated in government jobs only.
Will the ECB Maintain Data Dependency?
In the Eurozone, the preliminary CPI inflation numbers will be released on Monday, while on Thursday, the ECB is scheduled to hold its monetary policy decision.
At its latest gathering, the ECB cut interest rates by 25bps but gave no clear signals about the future pace of easing, allowing investors to continue penciling in around 88bps worth of additional reductions by the end of the year.
Another month of accelerating inflation and another guidance that points to a meeting-by-meeting approach could help the euro move higher, even if the ECB cuts rates by another 25bps. After all, this is already priced in.
Having said all that though, any ECB related gains are likely to remain limited as tariff uncertainty is still facing the European Union. Just this Wednesday, US President Trump said that he is planning to impose 25% duties on European cars and other goods. Delays in the efforts by German conservatives to form a coalition after their election victory could also weigh on the common currency, while attention could also fall on the special summit on March 6, where European leaders will meet to discuss additional support for Ukraine and security guaranties.
Canada’s Employment Report Also in Focus
At the time when the US employment data are scheduled to be released, Canada will publish its own jobs numbers. Following the better-than-expected jobs report for January and the stickier-than-expected core CPI numbers for the same month, traders are assigning a 50% chance that the BoC will take the sidelines at its upcoming gathering on March 12.
Another strong employment report could reinforce investors’ bets on Canadian policymakers taking the sidelines, but Trump’s renewed tariff threats toward Canada are unlikely to allow loonie traders to celebrate for long. After all, despite the loonie’s strength in the aftermath of the tariff delay Trump announced at the beginning of the month, the renewed threats this week have resulted in new setbacks, with the currency turning south again.
Aussie Traders Await RBA Minutes and GDP Data
Aussie traders will also have to digest a series of data releases. On Tuesday, during the Asian session, the RBA will release the minutes of its latest monetary policy decision, while at the same time, the preliminary retail sales for January will be published. On Wednesday, the GDP for Q4 will be released.
On February 18, the RBA began its own easing cycle by delivering a 25bps rate cut as was broadly anticipated. However, it sounded more cautious about future rate cuts. Combined with the fact that inflation held steady at 2.5% y/y in January, this prompted investors to assign an 80% chance of a pause at the upcoming gathering on April 1. They are also penciling in only two additional quarter-point reductions by the end of the year.
The minutes of the decision may provide additional information on how willing officials are to return to the sidelines. So, should this be the minutes’ message, and should the data come in strong, investors could become even more convinced about an April pause. The Aussie could gain but the concerns surrounding China’s economic activity and the prospect of additional tariffs by the US on the world’s second-largest economy and Australia’s main trading partner may limit those gains.
Speaking of China, the nation’s trade data will be released on Friday.