FX Shrugs FOMC & NFP

Today's release of the US January jobs report was clearly positive on payrolls (227K vs exp 180K), negative on unemployment rate (rose to 4.8% from 4.7%) and negative on earnings (0.1% m/m vs exp 0.3% from downward revision to 0.2% from 0.4%). The figures reduced chances of a March Fed hike to 26% from 33% and propped stocks higher. Barring any more USD-related statements from Trump & Co, the main USD factor of the month will be Yellen's semi-annual testimony to Congress starting on February 15th, which is widely anticipated to reiterate the Fed's improved assessment in this week's FOMC Fed.

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Instead of focusing on speculation about the number of this year's rate hikes (2 or 3), FX traders shift to Trump & Co's USD rhetoric and the shifting odds of a March Fed hike, which were as high as 33% three weeks ago, 32% prior to NFP and 26% now. The non-sustainability of any increase in earnings growth and the rise in unemployment could well be the focus of Yellen's testimony, indicating she requires more labour market tightness to see the inflation trend warranted for tightening ahead. Depending on where the dollar stands 2 weeks from now, FX could well be a mitigating factor in Yellen's testimony in revising down odds of March hike.

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