USD
Friday’s payrolls report blew past expectations, with the US economy adding 162k jobs in August against a consensus of 55k, while July was revised up to +21k from -23k. Unemployment held at 4.1%, and earnings rose 0.3% MoM. The dollar jumped around half a percent on the release as Treasuries sold off, though momentum faded into the close, leaving the hovering near 99 and softer on the week overall. As we noted on Friday, the details warrant caution: job gains were concentrated in food services and local government education, and the two-month average of around 80k still points to a stable labour market at full employment rather than reacceleration. Even so, the print tilts the FOMC debate firmly toward the hawks, leaving Friday’s August CPI decisive. A 0.3% MoM core print would make a 25bp hike to 3.75–4.00% on September 16th the path of least resistance, though we just about favour a 0.2% reading and no change in rates this month. More immediately, with US markets shut today for Labor Day, thin liquidity leaves the greenback trading off headlines after this weekend’s sharp US-Iran escalation.
EUR
spent last week slowly grinding higher on broad dollar softness, before Friday’s payrolls beat knocked it back towards 1.16. With the ECB in its pre-meeting quiet period, the single currency remains a dollar story for now. On Thursday we, like consensus, expect the Governing Council to raise rates by 25bps to 2.50%, so the market-moving potential lies in the new staff projections, and President Lagarde’s guidance on the pace of further tightening. Ongoing hostilities in the Middle East complicate any message, though given Lagarde’s prior tendencies, we expect the President to remain circumspect in her comments, limiting euro volatility. Today’s calendar offers second-tier support, with German industrial production, Sentix investor confidence, and final Q2 GDP all due, none of which are likely to be significant market movers.
GBP
slipped to around 1.35 in the immediate aftermath of Friday’s US payrolls beat before stabilising, opening this morning little changed. The underlying picture remains uncomfortable for sterling, with 10-year above 5.1% reflecting fiscal risk premia rather than monetary appeal, ahead of the autumn budget. That should remain the focus for sterling today, with Chancellor Healey set to deliver a major set-piece speech on the economy. We remain biased toward sterling downside until the fiscal picture clarifies, and we doubt that will be forthcoming in today’s comments. The domestic data calendar is sparse this week, with BRC retail sales tomorrow and July’s monthly GDP on Friday, expected flat. That mix, plus Healey’s speech, should help keep fiscal risks top of mind.
CAD
The loonie was Friday’s underperformer after a grim labour market report. Employment fell 41.7k in August against expectations for a 15k gain, driven by full-time losses, while wage growth slowed sharply to 2.0% YoY from 3.0%. surged roughly 80 pips on the double-whammy of soft Canadian and strong US data, before settling in the mid-1.38s. That move undid much of a constructive week in which the Bank of Canada’s hawkish hold at 2.25% had helped push the pair briefly into the 1.37s. Today’s Labour Day holiday means quiet trading, but tomorrow’s implementation of Canada’s counter-tariffs on US goods is the next domestic risk, again with negative implications for the loonie.
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