• Operation Epic Fury to give USD a short-term haven bid. Crude oil prices overshoot limited.

• The broader direction for USD and risk assets will hinge on this week’s US jobs data.

• CPI watch for Eurozone, Sweden, and Switzerland. China to unveil 2026 growth target.

USD traded mostly sideways last week amid a lack of policy-relevant economic data, leaving macro catalysts thin. Instead, markets were driven by a defensive shift as an AI scare trade, growing stress in private credit, and Middle East war risks sparked demand for safe assets. US equities underperformed global peers, Treasuries rallied sharply across the curve, CHF outperformed all other G10 currencies, and gold prices edged higher.

The unfolding US-Israel military combat operation against in Iran could give USD a short-term haven bid. However, the broader direction for USD and risk assets will hinge on this week’s US jobs data. Payrolls, not geopolitics, are likely to set the tone for Fed expectations.

Operation Epic Fury

On Saturday, the US launched Operation Epic Fury, a joint American-Israeli military campaign against Iran’s military and leadership targets. President Donald Trump said the objective is “eliminating imminent threats from the Iranian regime” and urged Iranian people that “when we are finished, take over your government. It will be yours to take.” Trump also stressed that the strikes against Iran “will continue, uninterrupted throughout the week or, as long as necessary.”

For financial markets, the immediate concern is the disruption to crude oil flows through the Strait of Hormuz, where nearly 20% of global oil shipments pass through. Bloomberg news points out that oil shipping has largely paused in the Strait of Hormuz, with Iranian media saying the waterway is “practically closed.” Another major risk is Iran targeting oil infrastructure including refineries, storage terminals, and pipelines.

Crude oil prices are poised to surge when markets open on Monday. However, investors should lean against overshoots in crude oil prices as global oil production continues to outpace global demand. The International Energy Agency (IEA) projects 2026 crude oil production at an average of 108.6 million b/d and consumption at an average 850’000 b/d. Encouragingly, OPEC+ agreed on Sunday to boost output by 206,000 barrels per day from April.

US Jobs in the Spotlight

February nonfarm payrolls (NFP) report is due Friday. The data will reveal whether the labor market is truly on a more solid footing or if January’s strong NFP number was merely a blip. Consensus is looking for +60k job gains vs. +130k in January and the unemployment rate is seen unchanged at 4.3% in February, a tick below the FOMC 2026 median projection. The focus will be the sector generating the job gains and the extent of the revision to the January number.

In January, job gains were concentrated in the non-cyclical health care and social assistance sector, a pattern that has historically signaled an impending labor market slowdown. Excluding the health care and social assistance sector, which constitute around 20% of total employment, nonfarm payrolls were up only +6.5k in January.

Meanwhile, in the past three years, the second preliminary January payrolls estimate has been revised downward from the initial estimate. The January job gains in 2025, 2024, and 2023 were revised down between the first and second estimates by -18k, -124k, and -13k, respectively (more details here).

The risk is a big revision downward to the solid NFP gains last January because of conflicting signal in private sector job gains. The Bureau of Labor statistics (BLS) reported the private sector added +172k jobs in January while ADP and Revelio private payrolls were up just +22k and +3k, respectively. The February ADP private employment print is due Wednesday and Revelio non-farm employment is released on Thursday.

Bottom line: if the NFP data for February are consistent with the stronger job creation and low unemployment rate initially reported in January, it would reinforce the case that the Fed can be patient before resuming easing and give USD a modest lift. But a weak February NFP and/or a significant downward revision to the good labor market news of January would support a more aggressive Fed easing cycle and weigh on USD.

February Manufacturing ISM is on Monday, and the Services ISM is on Wednesday. The expansion in manufacturing activity is projected to slow (51.5 vs. 52.6 in January) and services sector growth momentum is expected to moderate (53.5 vs. 53.8 in January). Pay attention to the Prices Paid and Employment sub-indexes for signs that the tension between employment and inflation is diminishing or worsening. The Fed Beige Book (Wednesday) will also offer fresh anecdotal insights on the US labor market and inflation backdrops.

US Productivity and Retail Sales Take a Backseat

Q4 non-farm productivity data is due on Thursday. Productivity (GDP/hours worked) is expected at 1.8% SAAR vs. 4.9% in Q3. The recent quarterly rise in productivity is largely cyclical, driven by output rising faster than hours worked, rather than AI-driven efficiency gains. Indeed, year-over-year productivity growth was 1.9% in Q3, just below the long-term rate of 2.1% since Q1 1947.

Moreover, total factor productivity (TFP), which reflects technological progress, remains modest compared with previous technology-driven episodes. Over the past four quarters ending in Q3 2025, TFP grew at a rate of 0.89%, vs. an average of 2.1% during the post-war boom (1948-1973) and 1.8% during the IT boom (1996-2004).

January retail sales data is due on Friday. The headline retail sales print is expected to decline -0.3% m/m vs. 0% in December while the retail sales control group, used for GDP calculations, is projected to rise 0.3% m/m vs. -0.1% in December. January is typically a soft month for retail sales after the holiday season and cold weather.

CPI Checkpoint

Eurozone February CPI is due Wednesday. Both headline and core CPI are expected to remain at 1.7% y/y and 2.2% y/y, respectively, for a second straight month. Eurozone inflation is stabilizing around the ECB’s 2% target, meaning the ECB is well placed to keep rates on hold at 2.00% for some time, which limits EUR upside. The swaps curve price-in nearly 50% odds of a 25bps cut in the next twelve months.

Switzerland February CPI is due Wednesday. Headline CPI is expected at 0.0% y/y vs. 0.1% in January. The Swiss National Bank (SNB) forecasts headline CPI inflation to average 0.1% y/y in Q1 and signaled that the bar is high for negative rates. The swaps curve price-in 76% odds of a 25bps rate cut to -0.25% in the next twelve months. Regardless, CHF’s status at the ultimate store of value among fiat currencies offsets the drag from the likelihood of negative rates.

Sweden February CPI is due Thursday. CPIF is expected at 1.8% y/y (Riksbank forecast: 1.3%) vs. 2.0% in January while CPIF ex-energy is projected at 1.5% y/y (Riksbank forecast: 1.7%) vs. 1.7% in January. The Riksbank signaled it’s done easing but the swaps curve price in small odds (36%) of a 25bps cut in the next twelve months. We agree, another Riksbank cut cannot be ruled out, which is a headwind for SEK. There’s still significant spare capacity in Sweden’s economy, with the output gap projected to average -0.6% of potential GDP over 2026 vs. -1.6% in 2025.

Elsewhere…

National Bank of Poland (NBP) is widely expected to cut rates 25bps to 3.75% (Wednesday); Bank Negara Malaysia (BNM) is widely expected to leave the policy rate on hold at 2.75% for a fourth consecutive meeting (Thursday); Australia Q4 real GDP is seen at 0.7% q/q or 2.2% y/y, close to the RBA’s December 2025 forecast of 2.3% y/y (Tuesday); China’s February PMIs are expected to remain indicative of a soggy growth outlook (Tuesday).

China will also unveil its 15th Five-Year Plan at the opening of the National People’s Congress (Thursday). Officials are expected to set a 2026 growth target of 4.5% to 5%, down from around 5% in recent years, while keeping policy supportive.