The US Dollar stabilised early Tuesday after minor losses against major currencies on Monday. Key US economic data, including October and November Nonfarm Payrolls (NFP), wage inflation, Unemployment Rate for November, October Retail Sales, and preliminary December S&P Global PMI, are anticipated. The US Dollar saw a 0.15% decline on Monday, settling above 98.00 on Tuesday, with forecasts suggesting the Unemployment Rate will remain at 4.4% in November and NFP to increase by 40,000.
EUR/USD remained stable at around 1.1750, awaiting German and Eurozone HCOB PMI data. GBP/USD saw slight declines but maintained above 1.3350, pending October employment figures from the UK’s Office for National Statistics. In Canada, annual inflation remained at 2.2% in November. USD/CAD continued near 1.3800, while USD/JPY fell by about 0.4% due to anticipated Bank of Japan policy changes.
Australia And Gold Market Trends
Australia’s private sector activity growth slowed, affecting AUD/USD, which traded below 0.6650. Gold traded around $4,280, experiencing a decrease amid optimism about a potential Russia-Ukraine peace agreement.
Nonfarm Payrolls offer insights into US employment, influencing Federal Reserve decisions and often correlating positively with the US Dollar. A high NFP typically suggests economic growth, impacting both currency and commodities like Gold. However, market reactions can be complex, with various report components influencing outcomes.
Today’s key event is the release of Nonfarm Payrolls data, which will introduce significant volatility into the market. With expectations set for a very low gain of only 40,000 jobs, we should prepare for sharp price swings in major currency pairs and indices. Derivative traders can use options to position for this expected spike in volatility, regardless of the ultimate direction.
Impact Of The US Labor Market
The weak forecast points toward a cooling US labor market, putting immense pressure on the Federal Reserve to consider rate cuts. We have seen the Fed hold rates firm for a prolonged period, so any confirmation of economic weakness will accelerate market pricing for an easing cycle in early 2026. This reinforces the bearish outlook for the US Dollar, as lower interest rate expectations typically weigh on a currency.
This month, the US Dollar has already shown weakness against most major currencies, especially the Canadian Dollar. The reported unemployment rate of 4.4% is notably higher than the sub-4% levels we became accustomed to during the 2023-2024 period, signaling a clear shift in the labor market. A payrolls number at or below the 40k forecast would likely trigger another significant move down in the USD Index.
We are seeing a clear policy divergence with the Bank of Japan, which is signaling a more hawkish stance. This makes shorting the USD/JPY pair a compelling strategy, as a dovish Fed and a hawkish BoJ create a strong fundamental driver. Traders could look at buying put options on USD/JPY to capitalize on a potential downward move while managing risk.
Gold is currently pulling back, but we must view this in the context of its rally to over $4,300, which reflects the persistent inflation and geopolitical risks of the past two years. A weak jobs report would be bullish for gold, as it would weaken the dollar and lower real interest rates. We should see any price dips ahead of the data as potential opportunities to position for a move higher.
The most critical factor will be the deviation from the 40k expectation, as this will determine the market’s immediate reaction. A surprise reading significantly above this number could cause a violent short squeeze on the dollar, catching many off guard. Using defined-risk options strategies is therefore prudent to protect against an unexpected outcome.
