NFP on the agenda

The dollar was down on Friday morning, heading the worst week in nearly two years, as the Bank of England (BOE) and European Central Bank (ECB) tightened their monetary policies ahead of US non-farm payrolls report. BOE raised rates by 25bps to 0.50%, and ECB kept its policy unchanged. However, Lagarde opened the door for a new tightening cycle this year by the ECB.

As stock markets are on the back foot amid mixed earnings and the hawkish tone from central banks, bond yields continue rising, and risk currencies are more in demand.

The divergence between central bank policies has almost passed. Now, investors will focus not just on when central banks will raise interest rates but also on how quickly and how high they will do it.

Euro is heading its best week in two years

Following the European Central Bank's hawkish shift on Thursday, the euro is on pace for its best week since March 2020, testing a near three-month high. The euro broke through the 100-day exponential moving average around 1.14830 in Friday's morning trading, as bulls tighten their belts to take on 1.15.

US Non-Farm Payrolls

Last week's US initial jobless claims were lower than expected at 238,000. ISM's non-manufacturing PMI for January was 59.9, while the services PMI was 51.2. Both indicate a decline from previous readings. The University of Michigan index fell to a decade low. This data follows the first drop in private-sector payroll growth since December 2004, according to the ADP report.

Non-farm payroll growth is predicted to slow to 150,000 from 199,000. While a soft report may not deter the Fed from tightening in March, it could give euro bulls more reason to sell US dollars.

Canada employment change report

In Canada, job growth is also expected to be weaker. Recent months have seen a solid labour market with consistent positive surprises. However, due to the fast spread of Omicron, December's Canada Ivey PMI sharply dropped to 45 from 61.2. It is expected that Omicron and new restrictions will result in the first job loss since May 2021.