After the initial market turbulence caused by tariff concerns earlier in the week, the US dollar has shown signs of recovery. The sharp increase on Monday was followed by a pullback, but today, the currency is regaining strength. This movement appears to be a result of traders adjusting positions ahead of the US employment report. Although some Federal Reserve officials acknowledge the potential supply shock from tariffs, expectations of a rate cut in June and another by year-end have slightly increased. The greenback is generally weaker against G10 currencies, except for the Japanese yen, against which it remains relatively stable. Meanwhile, the British pound has experienced the most significant drop among major currencies, declining by around 0.6%. 

Asia Pacific Markets

The US dollar’s movement against the Japanese yen has been influenced by declining US yields and stronger wage data from Japan. The dollar fell below its 200-day moving average, reaching a low of JPY152.10, before rebounding to nearly JPY153 in early European trading. The recent hawkish commentary from the Bank of Japan has further supported the yen. Additionally, Japan's upcoming household spending report is expected to show a slight year-over-year increase, marking the first positive reading for December since 2018.

European Markets

The euro managed to recover from the losses triggered by US tariff concerns, briefly surpassing $1.0440. However, ahead of the US employment report, the euro has retreated to approximately $1.0355. This pullback was exacerbated by weaker-than-expected retail sales data for December, which declined by 0.2% instead of the forecasted 0.1% drop. Market sentiment strongly anticipates that the European Central Bank will implement a 50-basis-point rate cut before the Federal Reserve considers another adjustment. Initial support for the euro is expected within the $1.0300–$1.0325 range.

American Markets

The US Dollar Index has shown a dynamic movement throughout the week, initially dropping to its lowest level since late January before rebounding. Earlier this week, uncertainty around tariffs drove the index to nearly 109.90, but the postponement of these tariffs led to a retreat. However, the dollar has regained some strength today, moving slightly above yesterday’s high. Treasury yields are also on the rise, with the 10-year yield climbing from its recent low of 4.40% to approximately 4.44%.
Market participants are closely monitoring key economic data, including Q4 productivity and unit labor costs. Although these figures are derived from GDP reports and not directly observed, they indicate that labor costs have likely risen due to weaker productivity growth. Additionally, while weekly jobless claims and layoff data provide some insight into employment trends, the primary focus remains on the upcoming national employment report and the benchmark revisions to the establishment survey. The outcome of this data will likely play a crucial role in shaping expectations for future Federal Reserve policy moves.