The recent strong U.S. payrolls report is more than just a positive data point; it reinforces the theme of 'U.S. exceptionalism.' This solidifies the dollar's strength by confirming a cyclical upturn in the labor market and removing downside risks ahead of the upcoming FOMC meeting.
Despite an expectedly hawkish European Central Bank (ECB) meeting, any resulting Euro strength should be sold into. The rate hikes are driven by persistent inflation, not robust growth, which limits the currency's upside. This positions the Euro as an underperforming 'funder' currency against higher-yielding alternatives.
A hawkish ECB will likely cause the Swedish Krona (SEK) to underperform. Sweden's significant disinflation problem means the Riksbank cannot match the ECB's rate hikes. This policy divergence, evident in the widening Euro-SEK rate spread, creates a strong case for SEK underperformance, especially against the Euro.
Sterling's ability to hold its value against the dollar, even as other high-yield currencies weakened after the strong U.S. payrolls data, suggests the market is still heavily short the currency. This price action serves as a key indicator that positioning, not just fundamentals, is a primary driver for the pound.
A single strong Canadian jobs report is unlikely to alter the Bank of Canada's dovish stance. The broader economic context shows entrenched cyclical weakness, negative job growth over a six-month period, and structural risks from USMCA negotiations. Therefore, the central bank is expected to look past this one-off data point.