The dollar index rallied on Thursday, rebounding from the previous session's Fed-inspired losses nL1N2UT1TV after BoE nBEL2DEJ43 and ECB nL1N34I0E9 meetings sent gilts and bund yields sharply lower, while upbeat U.S. data also provided a lift nL1N34I16Q before Friday's jobs and ISM reports.

Markets increasingly suspect the Fed, BoE and the ECB will hike rates less than their guidance suggests, leaving investors more data dependent to confirming those divergences.

Peaks in Fed, BoE and ECB rates are currently priced in around midyear at roughly 4.9%, 4.25% and 3.3%, respectively.

But markets project the Fed will cut rates roughly 50bp by year-end versus only about 25bp by the BoE and 10bp by the ECB.

EUR/USD fell 0.69% and sterling dove 1% as 2-year bund-Treasury yield spreads plunged 15bp to -1.59% and 2-year gilts-Treasury spreads tumbled 24.7bp to -0.93%.

USD/JPY fell 0.3%, standing out in the crowd of dollar gains due to JGB yields actually rising marginally amid the BoJ's increasingly contested yield curve control and its 0.5% cap on 10-year yields.
That caused 10-year Treasury-JGB yields spreads to fall roughly 5bp to new trend lows and 2-yr spreads down 3.5bp and within 5bp of recent trend lows.

Friday's January non-farm payrolls are forecast at 185k versus 223k last.
The jobless rate is expected at 3.6% from December's nearly 50-year low at 3.5%.
Average hourly earning are forecast again up 0.3%, allowing the year-on-year increase to slip to 4.3% from 4.6%.

Also important will be the ISM non-manufacturing index, forecast at 50.4 from 49.4, along with any further moderation in the still heated prices paid index, last at 67.6, and the new orders index that plunged in December to 45.2 and its lowest since June 2020.

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