- A strong jobs report allows the Federal Reserve to pause.
- The yen believes in capital repatriation, while the pound fears a double blow.
The American economy is expanding not only due to artificial intelligence and rising wealth in stock indices, but also thanks to rising life expectancy. Seniors need care and the increase in healthcare hiring contributed significantly to the increase of 130,000 in January. The chances of a Fed rate cut in April fell to 22% and to 58% in June. And it sank along with him.The reduction in wages to 4.3%, the number of Americans working part-time and the number of people unemployed for more than six months complete the picture of labor market stabilization. This is good news for the Federal Reserve, which has to do this three times in 2025 to avoid putting undue pressure on the economy. The pause in the monetary expansion cycle is likely to be prolonged, playing in favor of the dollar.
Meanwhile, Donald Trump is calling for cuts in borrowing costs to save trillions of dollars in debt service. The White House continues to press its line, but if the Fed's independence is not threatened, EURUSD bears will remain in control.
The strengthening dollar gives the bulls a chance to find their footing. One of the factors behind the pair's rally to January highs was the carry trade. However, BCA Research recalls three cases, in 2008, 2015 and 2020, where the cancellation of carry trades due to deteriorating global risk appetite or strengthening funding currencies caused a drop in USDJPY.
The yen is supported by confidence in the stabilization of the financial system under Sanae Takaichi. This will accelerate the process of capital repatriation to Japan by the country's residents. Non-residents are attracted by the best start to the year for Asian indices this century. On the other hand, the spread between the Fed and BoJ rates remains wide, which helps USDJPY buyers.
One of the biggest losers from strong U.S. employment statistics was . According to Citigroup, the fall of the pound will accelerate in the second quarter, when it will receive the double blow of increased political risks and the easing of monetary policy by the Bank of England.
Positive news from the US labor market prevented gold from consolidating above $5,100 an ounce. However, its stability indicates that speculative demand remains strong.
He FxPro Analyst team
