FX Week Ahead: Goldilocks jobs report unlikely to inspire Trumpflation - ING

Analysts at ING noted, "It was a goldilocks US labour market report; solid job gains (+227k) point to healthy US economic activity, while bond market bears were sidelined by softer wage growth dynamics (in particular a downward revision of the prior strong 0.4% MoM print to 0.2%). One could imagine that a cautious Yellen Fed would be slightly concerned over muted wage growth, a successive uptick in the participation rate and increase in the U6 underemployment rate: all of which point to more (not less) job market slack."

Key Quotes
"With no major data catalysts in the week ahead, it is likely that the US yield curve remains modestly lower; fading odds of a March Fed hike will weigh on shorter-term rates, while the long-end is unlikely to get the inflationary inspiration that it needs to push higher. FX markets were caught between two markets; lower yields were offset by higher equities, which meant a fairly lackluster (but still negative) dollar response to the jobs report.

"It could be another politically charged week, with currency valuation in the spotlight after recent comments by the Trump administration. Trump's meeting with Japanese PM Abe will take center stage, with the Japanese PM set to argue that BoJ unconventional easing (and a weaker JPY) is good for the global (and US) economy."

"In the absence of rising US yields, risks to USD/JPY are on the downside if President Trump reiterates concerns over dollar strength (versus current account surplus currencies), while markets could once again test the BoJ's resolve when it comes to unlimited JGB purchases. USD/JPY downside could extend to the 110.50-111.00 area if current market conditions persist."

Payrolls only matter until Trump tweets