A double-NFP data release always had the potential to fuel a spike in volatility and a shift in market pricing into year-end, but alas it was not to be with the data certainly indicating still weak labour market conditions, but just not weak enough to see global investors reconsider the current profile for rate cut expectations in 2026. A March rate cut remains around a 50-50 call following the data with the only top-tier data release remaining the CPI data for November, to be released Thursday, MUFG's FX analyst Derek Halpenny reports.

Strong retail sales highlight consumer divide

"The moderate recovery of the dollar also reflected the mixed nature of the other data releases – the Control Group retail sales surged 0.8% m/m, the biggest increase since June. We continue to see a disconnect between the labour market and consumer spending reflecting the K-shaped performance amongst consumers. Lower income earners suffer from the cost of living crisis and see much less benefit from the strong equity market performance in contrast to higher income earners. Job insecurity related to AI fears is also likely higher amongst lower income earners, further reinforcing weak consumer confidence."

"We suspect further mixed employment data like we got yesterday will ultimately open up greater conviction over a rate cut in March but that may only come once we have the CPI data released on Thursday. The consensus is for YoY CPI rate to remain at around 3.0% but over the coming months we expect to see signs of disinflation emerge with the tariff-related inflation pick up possibly mostly now through the data given certain import-sensitive sectors of CPI have already shown larger MoM increases."

"The lack of dollar selling could also reflect the fact that Kevin Hassett is no longer the definite pick for Fed Chair position and instead both Kevin Warsh and Christopher Waller are back in the running. Polymarket probabilities now have Hassett, Warsh and Waller closer to each other than before. Still, Hassett is again showing as being the favourite so the recent relief for the dollar may quickly fade."