Investing.com – All eyes in currency markets are on Friday’s U.S. payroll report, with Citi saying the release is likely to have an impact on G10 currencies, particularly the U.S. dollar.

As seen in the September 3 note, since the jobs report released in early August until now, the market reaction to the data has been asymmetric for the USD: better data results have been relatively neutral for the USD, while worse data results have resulted in more pronounced and broader USD weakness.

However, the bank said August was largely driven by positioning, which has now shifted from long USD to low USD, as well as a focus solely on the US side of the growth story.

“We continue to emphasize that the backdrop to growth in the rest of the world remains concerning, particularly for manufacturing nations (e.g. Germany, China). We also have a much more dovish Fed priced in by markets compared to one and two months ago,” Citi added. “As such, we expect the USD reaction function to be somewhat different going forward compared to recent months.”

Citi said the market could be entering a period of greater dispersion in the currency market, and risk aversion to economic growth could result in the U.S. dollar underperforming against lower-beta currencies but outperforming higher-beta currencies.

So a print in line with Citi’s expectations – at 4.3% and 125,000 – should result in a decline, but not necessarily a broader weakening, in the US dollar.

“A more mixed print will shift attention to Fedspeak; here the market could face knee-jerk USD selling following Fed Governor Waller’s failed bid. A strong print could accelerate any USD short-covering from the leveraged segment and cause JPY and CHF to underperform,” Citi said.