US
USD continues to power forward against all major currencies underpinned by a modest upward adjustment to US rate expectations. A run of Goldilocks-type US data has helped anchor rate expectations in favor of USD.
Today’s December non-farm payrolls report (NFP) is set to shape the near-term Fed outlook (1:30pm London, 8:30am New York). The January University of Michigan sentiment survey will play second fiddle (3:00pm London, 10:00am New York).
Consensus is looking for +70k NFP gains vs. +64k in November and -105k in October due to the government shutdown. Private sector payrolls, a better indication of the underlying momentum in the labor market, is seen at 75k vs. 69k in November. But the significance lies less in the headline job gains, and more in the sector generating them.
In November, virtually all NFP gains came from the non-cyclical health care and social assistance sector, a pattern that has historically signaled an impending labor market slowdown. We expect a similar outcome in December. ADP private payrolls rose 41k in December with education and health services accounting for 39k of the gain. And, Revelio labs nonfarm payrolls increased 71k in December with education and health services accounting for 31.4k of the gain.
If our view of worsening US labor demand pans out, USD will likely unwind recent gains as the rate differentials narrative reassert itself. By contrast, signs of a stabilizing US labor market may help USD push toward the top of the range in place since June 2025 as markets trim Fed funds rate cut bets.
The US Supreme Court (SCOTUS) decision on President Donald Trump's use of emergency tariff powers could come as early as today. Online betting markets give less than 30% chance the court will uphold the tariffs.
A ruling against Trump's emergency tariff powers could see a kneejerk upside reaction in risk assets as it would strip the administration of a key economic weapon. In parallel, USD could come under downside pressure while the Treasury yield curve would steepen further on heightened fiscal concerns. Over the next ten years, the tariffs to date are expected to raise about $2.7 trillion while the One Big Beautiful Bill Act will cost $3.4 trillion.
A ruling in favor of Trump's emergency tariff powers would likely be risk-negative and USD positive at the margin because it would re-empower tariffs as a credible, unilateral economic weapon.
A muddled ruling, where the court grants limited emergency tariff and require only limited repayment, is the most likely scenario. This would raise policy uncertainty. But the broader market impact should be contained because the administration can pursue at least five other, albeit more cumbersome, alternative legal avenues that will keep most of the tariffs in place.
Treasury Secretary Scott Bessent said he expects President Trump to announce his Fed Chair pick before or after the Davos World Economic Forum (January 20-24). Online betting markets have Kevin Warsh and Kevin Hasset running neck and neck, while Fed Governor Christorpher Waller is lagging far behind.
CANADA
CAD has started the year as one of the worst performing major currencies with USD/CAD near a one month high, just under 1.3900. Canada December labor force survey is due today (1:30pm London, 8:30am New York). The economy is expected to lose -2.5k jobs after surprising with strong gains of 53.6k in November, 66.6k in October, and 60.4k in September. The Bank of Canada is done easing, limiting CAD undershoots. The swaps curve price-in 70% odds of a 25bps rate increase to 2.50% over the next twelve months.
NORWAY
NOK had a kneejerk upswing after Norway December inflation ran hot. Headline CPI rose to 3.2% y/y (consensus: 2.9%) vs. 3.0% in November and underlying CPI increased 0.1pts to 3.1% y/y (consensus: 3.0%). Persistently above target inflation backs the Norges Bank’s prudent easing of monetary policy stance and is NOK supportive. The Norges Bank has penciled in one 25bps cut in the next 12 months to 3.75%. That’s in line with interest rate futures.
CHINA
USD/CNH is holding under 7.0000. China’s December CPI matched consensus. Headline inflation quickened to 0.8% y/y (the highest since February 2023) vs. 0.7% in November driven by a rise in food prices while core CPI remained at 1.2% y/y for a third straight month. PPI printed at -1.9% y/y (consensus: -2.0%) vs. -2.2% in November and still suggests that deflationary pressure remains high.
China’s benign inflation backdrop continues to suggest that consumption spending is too weak. In our view, a continued appreciation in China’s currency could help the country shift its growth model towards consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.
