TD Securities’ FX strategists Jayati Bharadwaj and Howard Du note that stronger United States (US) payrolls produced only a modest reaction in the US Dollar (USD), as markets focus more on inflation than labor data. With the Federal Reserve’s (Fed) 2026 path now tied to the energy shock’s pass-through to core prices, they expect choppy USD trading and see near-term downside as elusive without progress in the Middle East.

Dollar reacts modestly to strong jobs

"The stronger than expected payrolls report had a modest reaction in the USD. We have flagged that the Fed path for the year now leans much more on how much the energy shock from Q1 will pass through to core inflation, rather than on labor market conditions (as long as they remain stable). This could potentially be why markets are reacting more to the softer wage growth data in the report rather than the stronger headline jobs number."

"We have flagged that the Fed path for the year now leans much more on how much the energy shock from Q1 will pass through to core inflation, rather than on labor market conditions (as long as they remain stable). This explains the timid reaction in the FX space, and the CPI report next week will be more closely watched."

"In the absence of fresh new catalysts, we continue to expect choppy USD price action in the near-term. Hawkish FOMC dissents and US data resilience has made near-term USD downside more elusive with positive developments on the Strait of Hormuz needed for the USD selloff to continue."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)