If inflation falls short of expectations following a strong non-farm payrolls report, the dollar could suffer a sharp decline.

ChainCatcher reports that, according to Jinshi, Morgan Stanley strategists noted in a report that a strong non-farm payroll report followed by lower-than-expected inflation data often triggers the largest decline in the US dollar. In this scenario, strong US growth signals without rising inflationary pressures favor risk-sensitive currencies against the dollar. The strategists stated that the inflation swap market suggests tonight's January inflation report may be lower than expected.