BUZZ-COMMENT-Tariffs trump payrolls risk, USD topside still preferred

Jan 10 (Reuters) - The near-term focus for FX markets will be on the U.S. employment report but looming tariffs from the incoming U.S. administration remain the bigger risk for markets.

So unless U.S. payrolls are materially weaker than expected, consensus FX trades expressing USD topside should continue to perform well in the lead-up to Donald Trump's inauguration as president on Jan. 20.

Fed officials are much less concerned about the state of the labor market than they were in the summer of 2024 following several months of robust jobs data. In turn, a downside surprise in payrolls is unlikely to notably move the needle for the Fed outlook.

The greater concern lies with the trajectory in inflation as evidenced by the rhetoric from policymakers in recent sessions. This concern will only increase with the implementation of trade tariffs.

CFTC positioning data shows that traders are holding the largest bullish bet on the dollar to start a year since 2015. Consequently, while a softer payrolls print may cause a slight positioning readjustment in the dollar, any resulting weakness in the greenback is likely to be short-lived and used to trade the currency from better levels.

Among the best expressions of fading any dollar dips would be against the Canadian dollar, sterling and the Swiss franc.

For more click on FXBUZ

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))