So the key question then is how fast will the Fed tighten policy given uncomfortably high inflation. Cue Friday's nonfarm payrolls report, which could help provide an answer. The latest US jobs report takes on added significance after minutes from the Fed's December meeting on Wednesday, showing some policymakers want to move even quicker to tighten policy, including by shrinking the Fed's $8 trillion-plus balance sheet.

Economists polled by Reuters forecast the US economy created 400,000 new jobs last month versus 210,000 in November. Should payrolls meet expectations, a whopping 6.5 million jobs would have been created in 2021.

The data could trigger fresh volatility across world markets – consider that rate-sensitive US 2-Year bond yields are up almost 15 bps this week and set for their most significant weekly jump since late 2019. A bond market volatility gauge has been creeping up to its highest levels since March 2020.

A Reuters poll meanwhile shows currency analysts expect the US dollar to extend its dominance well into 2022, given the focus on the Fed policy outlook. Nearly two-thirds of 49 foreign exchange strategists polled by Reuters between Jan. 4-6 said interest rate differentials would dictate sentiment in major FX markets in the near term, with only two concerned about new coronavirus variants.

Ahead of the payrolls data, the flash estimate of Eurozone inflation in December also has the potential to stir things up. On Thursday, data from Germany shows inflation in Europe's biggest economy remains high but may be peaking.

Asian shares, meanwhile, were on firmer ground, breaking two days of losses. European and US stock futures are also higher, while oil prices were heading for their best week since mid-December on supply worries amid escalating unrest in Kazakhstan and outages in Libya.