By Frank Walbaum, Market Analyst at Naga
The dollar traded within a range on Thursday following a volatile reaction to stronger-than-expected labor data. January nonfarm payrolls rose by 130,000, marking the strongest monthly gain in over a year, and the unemployment rate unexpectedly dipped to 4.3%. The figures eased recent fears of a sharper slowdown, providing support for both the currency and yields. Average hourly earnings advanced 0.4% month-over-month, rebounding from a softer December print and exceeding expectations. Despite this resilience, markets continue to price in two rate cuts by year-end, with the first easing expected in June.
Attention now turns to the upcoming inflation release. Headline and core prices are expected to rise 0.3% on the month. An upside surprise would likely push yields higher and strengthen the dollar by dampening easing bets. Conversely, if figures come in line with expectations, the currency could remain confined to consolidation, particularly as investors remain attentive to leadership dynamics at the Fed and what they may imply for the policy outlook in 2026.