Global Rates & FX Views: NFP & refunding review
At a Glance
In the aftermath of the recent non-farm payrolls (NFP) report and the US Treasury refunding announcement, the desk posits that the current trajectory of US yields will play a pivotal role in currency movements, especially for major pairs like EUR/USD, GBP/USD, and USD/JPY. Per the full note from BofA Global Research, the limited clarity from last week's FOMC meeting coupled with a steepening of the US yield curve underscores the heightened sensitivity of the market to incoming economic data. The NFP report is particularly significant as it influences both Fed communication and the overall US rate outlook, posing potential shifts in these currency pairs as traders adjust their positioning based on labor market signals.
Key Takeaways
- 01Elevated sensitivity of FX markets to US NFP and Treasury refunding outcomes.
- 02Limited clarity from the recent FOMC adds volatility to yield expectations.
- 03Significant implications for EUR/USD, GBP/USD, and USD/JPY based on economic data.
- 04Market positioning is heavily influenced by labor market indicators.
Full Analysis
What the desk is arguing
The desk emphasizes that upcoming data releases, particularly related to labor and inflation, will dictate market direction in the wake of the recent FOMC outcomes. The limited guidance from the Fed has created a dynamic environment, where market participants are keenly focused on economic indicators. According to BofA's analysis, the steepening of the US curve is indicative of a broader shift in investor sentiment.
Statistically, the significance of the NFP report cannot be understated, with notable implications for Fed policy adjustments. Market expectations for continued tightening might be challenged based on the payroll data, potentially reshaping currency valuations as seen in recent trading patterns.
Where it sits in our coverage
Our current consensus target for EUR/USD is set at 1.1700 with a range from 1.1200 to 1.2000. Notable targets from other firms include bofa at 1.1700 for Mar26 and anz at 1.1609 for the same tenor. Notably, our view aligns closely with several forecasts in the upper bound of the spread.
How other firms see it
Looking across the board, firms like ubs and deutschebank maintain bullish stances on EUR/USD, with targets around 1.2000 by Mar26. Conversely, firms like bofa and goldman forecast a more cautious approach, suggesting targets that lie below our consensus position.
Given the intertwined nature of the USD/JPY and the BoJ's policy stance, as well as the GBP/USD reaction to the Bank of England's rates, these pairs are essential to monitor in light of the impending data releases. Movement in USD/JPY, particularly, will reflect changes in US yields impacted by the NFP results.
Market Implications
Watch for the EUR/USD to test resistance levels near 1.1700 amidst upcoming labor market data. A surprise in the NFP results could shift yields and subsequently affect these key currency pairs. Traders should remain vigilant of adjustments in speculative positioning leading into the Fed's next announcements.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
UOB | Bearish | 1.1140 |
ABN AMRO | Bullish | 1.1500 |
Bank of America | Bullish | 1.1500 |
From the original
Please join Sphia Salim in conversation with Aditya Bhave, Mark Cabana and Meghan Swiber post-payrolls and US Treasury refunding. Given the limited guidance at last week's FOMC meeting and resulting US curve steepening, data has become an even stronger focal point for markets. We
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4 itemsGlobal Rates & FX Views: NFP: what it means for US rates & USD
Following the recent U.S. Non-Farm Payrolls (NFP) report, the desk posits that the data has significant implications for the Federal Reserve's decision-making in September, especially in juxtaposition with upcoming Consumer Price Index (CPI) numbers. Long-dated U.S. yields are on an upward trajectory, increasing pressure on global yields, which is a critical backdrop for trading the USD. Per the full note from BofA Global Research, the Federal Reserve's approach to inflation and employment is now more intertwined than ever, with inflationary concerns leading the deliberations among policymakers. Therefore, traders should closely monitor these insights, especially as interpretations of the NFP data unfold in the context of the forthcoming CPI release next week.
Global FX and Rates: Yield curve steepening, payrolls and FX hedge ratios
The desk posits that the recent yield curve steepening in developed markets is likely to have significant implications for FX markets, especially in the context of US payroll figures and fiscal differentiation. Per the full note [source], economists at J.P. Morgan highlight how rising long-term yields relative to short ones reflect market expectations for inflation and growth, which could bolster risk-sensitive currencies. As traders calibrate their hedge ratios in response to these dynamics, they may turn to pairs that reflect shifts in US economic sentiment influenced by upcoming payroll data.
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