The US has lost 140,000 jobs in December. Despite a larger decline in jobs than expected, FX markets shrugged it off. A weaker jobs print reinforces the need and expectation for additional fiscal support. However, economists at TD Securities think currency markets are a bit sanguine about Treasury supply and seemingly nonchalance of Fed officials on a backup in rates and expect slight USD strength.
Key quotes
“Payrolls were -140K in December, weaker than the +50K consensus; we had forecast -50K. Revisions added 135K to the previous two months. The unemployment rate held at 6.7%, below the 6.8% consensus. The household survey employment measure was +21K and the participation rate was flat.”
“We expect the double-dip pattern to continue into the new year as the pandemic remains rampant. We expect recovery to resume within a few months, with the help of vaccines and fiscal stimulus, although we also expect the labor market to show significant net weakening for several years.”
“We think the implication of a weaker jobs print just reinforces the need for additional fiscal support, which we expect to be passed sometime this quarter. This has us a bit more neutral on the USD on a tactical horizon as we think that the backup in US rates has further to go as supply gets priced-in. This puts USD shorts potentially at risk. We are more focused on marginal USD strength; 1.2210 in EUR/USD and 104.50 in USD/JPY.”
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