• NFP and CPI to put US jobs-inflation tradeoff in spotlight.

• Takaichi’s election triumph poised to shake Monday trade.

• GDP pulse in UK. Inflation prints in Norway and Switzerland.

Heads up: there will be no daily strategy report this week as I’m on the road.

USD firmed last week, largely reflecting JPY weakness. AUD outperformed the majors underpinned by a hawkish RBA hike. INR benefited from the US and India trade deal announcement. Latam FX and ZAR staged a late week rebound on a surge in AI-driven capital expenditures plans.

USD will likely trade on the defensive this week as ongoing US labor market fragility and easing inflation pressures support Fed funds futures pricing 50bps of cuts by year-end. The US January non-farm payrolls and CPI reports will test Fed Chair Jay Powell’s claim that tension between employment and inflation has diminished.

US Job & Inflation Check

US January nonfarm payrolls (NFP) data is due Wednesday. Consensus is +69k job gains vs. +50k in December, while the whisper number is +50k. Risks are skewed to the downside. In January, Revelio labs nonfarm payrolls fell -13.3k, ADP private payrolls growth underwhelmed at +22k (consensus: +45k), and ISM Services Employment growth dropped to near stall speed.

The significance lies less in the headline job gains, and more in the sector generating them. In December, most of the job gains came from the non-cyclical health care and social assistance sector, a pattern that has historically signaled an impending labor market slowdown. Excluding the non-cyclical health care and social assistance sector, nonfarm payrolls were up just 11.5k in December.

The final benchmark revisions to establishment survey employment will also be issued at the same time. The preliminary estimate of the benchmark revision released last September indicated a downward adjustment to total nonfarm employment of -911k for the twelve months ended in March 2025.

The unemployment rate is seen unchanged at 4.4% in January, in line with the FOMC 2026 median projection. However, the sharp drop in the January Conference Board labor differential index (jobs plentiful minus jobs hard to get) to the lowest since February 2021, is indicative of a rising unemployment rate.

January CPI is due Friday. Headline CPI is expected to rise by 0.3% m/m for a third straight month and drop 2.5% y/y (lowest since May 2025) vs. 2.7% in December. Core CPI is also expected to rise by 0.3% m/m vs. 0.2% in December and dip to 2.5% y/y (lowest since March 2021) vs. 2.6% in December. Keep an eye on whether super core services (less housing) inflation remains stubbornly sticky above the Fed’s 2% target or shows signs of easing. For reference, super core CPI printed at 2.7% y/y in both December and November 2025.

More importantly, upside risks to prices are fading and leaves scope for the Fed to ease policy. The ISM prices paid indexes point to moderating inflation pressures. Additionally, wage growth is running around sustainable rates consistent with the Fed’s 2% inflation goal given annual non-farm productivity growth of around 2%. Average hourly earnings are seen at 3.7% y/y in January vs. 3.8% in December while the Employment Cost Index (ECI) wages & salaries - the Fed’s favorite wage data - was 3.5% y/y in Q3. Q4 data will be published on Tuesday.

Big Win for Takaichi

Japan's Prime Minister Sanae Takaichi’s Liberal Democratic Party (LDP) is projected to win 300 seats by itself in the 465-seat house and on track for a two-third supermajority (310 seats) with its coalition partner, Ishin no Kai (Japan Innovation Party). The result is largely in line with pre-election polls.

A supermajority would give Takaichi’s government the power to fast-track its pro-stimulus fiscal agenda by overriding the currently fragmented Upper House. When markets open on Monday, we expect kneejerk downside moves in both the yen and long-term Japanese government bonds reflecting heightened fiscal concerns. Japanese stocks are poised to rally.

Nevertheless, we would fade a post-election USD/JPY bounce. First, worries over Japan fiscal profligacy are overdone given that growth comfortably exceeds borrowing costs. Second, Japan’s mix of loose fiscal policy and tighter monetary policy is JPY positive. See here for details.

GDP pulse in UK. Inflation Prints in Norway and Switzerland.

We expect GBP to underperform NOK and CHF. The bar for more BOE interest rate cuts is lower compared to the Norges Bank and SNB.

UK Q4 GDP is due Thursday. In line with the Bank of England’s (BOE) forecast, consensus pencil in real GDP growth of 0.2% q/q in Q4 vs. 0.1% in Q3. That growth rate is lower than the BOE’s estimated potential output growth (1.5% y/y, or 0.4% q/q) and leaves room for the bank to deliver additional easing. The swaps curve implies 70% odds of a 25bps rate cut to 3.50% at the next March 19 BOE meeting and a total of nearly 50bps of cuts in the next twelve months.

Norway January CPI is due Tuesday. Headline is expected at 3.0% y/y vs. 3.2% in December and underlying CPI is seen at 3.0% y/y vs. 3.1% in December. The Norges Bank’s January CPI forecasts are slightly lower with headline at 2.7% y/y, and underlying at 2.9% y/y. The Norges Bank pencils in one full 25bps rate cut to 3.75% by Q4, matching market pricing. That seems reasonable, given the Norges Bank’s preference for a restrictive stance as it views inflation as being too high.

Switzerland January CPI is due Friday. Headline CPI is expected at 0.1% y/y in January vs. 0.1% in December and core CPI is seen at 0.5% y/y for a second straight month. The Swiss National Bank (SNB) forecasts headline CPI inflation to average 0.1% y/y in Q1. The swaps curve price-in 40% probability of a 25bps cut to -0.25% in the next twelve months. Barring a turn into deflation, we doubt the SNB will cut further.

Peru to Keep Rates Steady

Peru’s central bank (BCRP) is widely expected to keep rates on hold at 4.25% for a fifth consecutive meeting (Thursday). The BCRP assesses the current interest rate level to be “very close to the level estimated as neutral (4.00%)”. Peru’s positive real interest rates, favorable balance of payments backdrop, and firm copper prices bode well for PEN.