Risk of Escalation Discourages Risk Taking while US Jobs Report May Extend the Dollar's Narrow Ranges

The shroud of the Middle East war overhangs the Good Friday holiday. The attack on an Iranian bridge yesterday threatens a response in kind by Tehran, and this will serve to keep risk appetites in check ahead of the weekend. Many centers will be closed on Monday, as well. The main interest today is with the US March jobs data. Because the labor force is barely growing, in good part due to the crackdown on immigration (both legal and illegal), various estimates suggest that practically no job growth is consistent with the new equilibrium. The US has created about 156k jobs over the past 12 months, and the unemployment rate has averaged 4.3%. The unemployment rate is at 4.4% and that is the median projection for the end of the year by the Federal Reserve last month. The low level of unemployment seems to belie claims of stagflation. 

Meanwhile, news that the US Army Chief of Staff General, and two other generals were purged is being discussed widely. It seems unusual in the middle of a military conflict. Reports suggest clashes over promotions and operational strategy in Iran. While it could impact command continuity it is arguably about aligning leadership with the administration’s goals. At the same time, it fans some fears that the US will put “boots on the ground”. This feeds into the market’s reluctance to take more risk. At the same time, the week ending Wednesday was the first in six weeks that foreign central banks did not draw on their custody holdings (Treasuries and Agencies) at the Federal Reserve. In fact, their holdings increased by almost $3.3 bln. 

Prices  

G10

• The euro’s sell-off after President Trump’s national address on Wednesday evening in the US, saw it retrace (61.8%) of the week’s rally, slightly below $1.1515. It recovered to about $1.1565 before running out of steam. The thin markets have confined it to about $1.1530-$1.1545 so far today, trading as it were between two option strikes ($1.1525 for ~512 mln euros and $1.1550 for ~850 mln euros) that expire today. The US jobs data may expand the range but the risk of escalation in the Middle East may deter strong gains ahead of the weekend. 

• The dollar approached JPY159.75 in early North American turnover yesterday. It pulled back to around JPY159.25 before it recovered. It is trading quietly between about JPY159.45 and JPY159.70. Options for about $430 mln, struck at JPY160 expire today. 

• Sterling recorded the low for the year on Tuesday near $1.3160. It rallied to around $1.3345 on Wednesday but retreated deeply back to almost $1.3180 yesterday. It recovered to about $1.3250 before stalling. Sterling is in a narrow range of about $1.3220 to $1.3245. Options for GBP375 mln at $1.32 expire today. 

• The US dollar recorded the year’s high against the Canadian dollar on Tuesday near CAD1.3965. It backed off to almost CAD1.3870 on Wednesday and caught a new bid yesterday that lifted it to CAD1.3935 yesterday. It is confined to about CAD1.3915 to slightly more than CAD1.3925. The daily momentum indicators are stretched but they won’t prevent challenge on this week’s high, and possibly a test of the CAD1.4000-15 area. 

• The Australian dollar was sold to $0.6860 in the risk-off moves that followed President Trump’s address. It recovered to almost $0.6920 in North American turnover but has remained slightly below there today. It frayed $0.6900, but not by much, and options for A$840 mln at $0.6880 expire today, as do ~A$540 mln options struck at $0.6870. 

EM

• The dollar recorded an inside day against the Mexican peso yesterday, having remained in Wednesday’s range (~MXN17.7960-MXN17.9680). The local markets were closed yesterday and remain on holiday today. It has been confined to a narrow range around yesterday’s MXN17.87 close, with a small downside bias. 

• The dollar found support against the offshore yuan in front of CNH6.8720. It has not traded below CNH6.8700 for three weeks. Although the dollar traded up to CNH6.9040, it settled below CNH6.89. It has hardly spent any time above yesterday’s settlement and slipped slightly below CNH6.88. The PBOC set the dollar’s reference rate sharply lower in the past two sessions (by a total of a little less than 0.5%) and lowered it for the third consecutive session yesterday. It has not been set lower for four consecutive sessions this year. The pattern held, and today’s fix was set at CNY6.8929 (CNY6.8880 yesterday, a new three-year low, and CNY6.9141 a week ago). 

• Indian markets are closed for the holiday today.

Other Markets

• The holiday has seen many financial centers close. The equity markets in the Asia Pacific region that were open were mixed. The Nikkei gained about 1.25% and South Korea’s Kospi gained 2.75%. The others, including mainland China, and several smaller bourses eased. European bourses are closed, leaving the Stoxx 600 with about a 2.7% gain this week. The US stock market is closed today but the futures are off by around 0.2%-0.3%. They are up 2.6%-3.5% on the week ahead of the US jobs report. 

• Benchmark 10-year yields are flat. The 10-year JGB yield slipped slightly and is up about 1.5 bp this week. European bond yields are off 4-13 bp lower this week and peripheral premiums narrowed. The US 10-year Treasury yield is at 4.30%, which is about 4.5 bp lower than it settled last week. 

• The holiday means that gold, silver and oil are not trading.

Data

• The median forecast in Bloomberg’s survey is for a 65k rise in March US non-farm payrolls, and the unemployment rate is seen unchanged at 4.4%. Of course, the February loss of 92k jobs is subject to revision. Since last April’s Liberation Day, the US has lost about 20k jobs overall and 90k in the manufacturing sector. Part of the reason for the persistent revisions is that businesses appear more reluctant to participate in a timely fashion. The final services and composite PMI are of passing interest as the preliminary estimate is “close enough”.

• Despite the Good Friday holiday, France reported a larger than expected 0.7% decline in February industrial output and January’s 0.5% increase was revised to 0.2%. The aggregate estimate for the eurozone is due April 15.

• Japan reported its final March services and composite PMI. The former stands at 53.4, up from the initial estimate of 52.8, but down from 53.8 in February, its highest level since April 2024. The composite is at 53.0, better than the 52.5 flash estimate but down from 53.9 in February.

• China’s RatingDog March services PMI slowed to 52.1from 56.7. This unwinds the February’s gain from 52.3 in January. The composite eased to 51.5 from 55.4. It averaged 51.3 in 2025 and 51.4 in Q4 25. The Q1 26 average is 52.8. 

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