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Dollar rises as markets brace for strong jobs number

The dollar is climbing against all of its major rivals as traders buy insurance against another strong jobs report. Economists think US non-farm payrolls, out at 8:30, will rise by 200,000 in December, with the unemployment rate holding at 3.7 percent. The “whisper number” on Wall Street appears closely aligned, with most market participants prepared for a print between 150,000 and 250,000 that keeps the Federal Reserve on a tightening trajectory – suggesting that a buy-the-rumour, sell-the-news dynamic could hit the greenback in the minutes after the release.

The Canadian dollar remains on a defensive footing even as Statistics Canada is expected to report another 5,000 positions added in November, with the unemployment rate ticking modestly higher to 5.2 percent. With the jobs market in strong shape and inflation running uncomfortably hot, markets are gradually raising odds on another rate hike at the Bank of Canada’s January meeting – but with the economy slowing and export demand weakening, such a move could quite plausibly represent the last in this tightening cycle.

The euro is weakening after inflation in the common currency zone fell by more than expected. Headline consumer prices climbed at an annualized 9.2 percent pace in December, down from 10.1 percent in the previous month and a record-setting 10.6 percent in October. Markets had expected something closer to 9.5 percent. But we would note that German fiscal support did most of the heavy lifting, and core euro area inflation – with food and energy prices excluded – rose 5.2 percent, a level that will compel the European Central Bank to tighten policy further.

Chinese assets are rising after Bloomberg said authorities are preparing to relax some of the “three red lines” policies that have tightened liquidity in the world’s biggest and most over-leveraged property sector. According to a report published last night, the government will allow developers to exceed a 70-percent liability-to-asset ratio, and may extend a grace period for meeting debt targets – steps that should ease a cash crunch and remove some of the pressure forcing real estate prices down. The offshore yuan has strengthened sharply over the last week, suggesting that market participants think the government’s support measures will successfully offset reopening-related turmoil and set the foundation for stronger growth as the year progresses.

Data due at 10 am is seen showing factory orders falling 1.1 percent in November from the prior month as retailers and suppliers brace for slower consumer demand. Federal Reserve speakers include Barkin, Bostic, Cook, and George. And Republicans in the House of Representatives will resume trying to elect a Speaker at noon, after the 11 previous ballots failed to deliver a result.

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