Today, everyone’s focused on the US jobs report, which is coming out a day early, on Thursday, because of tomorrow’s Independence Day holiday. This report is important because the dollar is in a weak position, which means it can significantly influence how people feel about the economy moving forward. There’s also increasing pressure on Powell to announce rate cuts, especially with the disappointing data we’ve seen recently. The minutes from the Federal Open Market Committee’s meeting in December will be released at 2 PM New York time. Currently, Fed funds futures suggest there’s about a 27% chance of a rate cut this month. Ongoing trade and tariff uncertainties continue to weigh on the markets, making it unlikely that the Fed will change its policy suddenly. A 25 basis point (bps) rate cut is expected in September, with more cuts likely in October, totaling about 67 bps cuts anticipated by the end of the year.

Dollar Weakness and Jobs Data Impact

With the dollar remaining weak, today’s jobs report might make things worse if the data isn’t positive. The Fed must consider trade challenges and legislative outcomes related to Trump’s proposals, in addition to economic forecasts. Even if today’s data is good, it might not lead to major changes in the Fed’s strategy. We expect to see initial policy shifts in September unless indicated otherwise by the Fed. Thus, a quick reaction to any positive job numbers is unlikely to change long-term expectations. Because today’s schedule has shifted because of the holiday, market participants are reacting earlier than normal to the usually Friday-published non-farm payrolls data. However, its importance remains unchanged. Given the recent weaknesses in US indicators and the likelihood of a shift towards easier monetary policy, today’s job figures are crucial for rate predictions and broader moves of the dollar. Futures traders still show patience regarding interest rate expectations, although the consensus is still leaning toward significant easing by year-end. Pricing indicates nearly three cuts for 2024, with the first expected in September. This setup allows little room for a big change if today’s numbers exceed expectations. Markets aren’t ready to abandon the easing outlook overnight. Powell is under growing scrutiny, both politically and economically. Observers are closely watching to see if he will stray from the current course. His communication has remained cautious, focusing on data rather than speculation. This is important given the divisions within the Fed—some members want to wait for clearer signs of less inflation, while others are concerned about economic growth slowing. This division limits the Fed’s ability to respond quickly unless there’s significant change in short-term data. Hence, today’s report holds critical weight.

Market Reactions and Future Predictions

For those keeping a close eye on rates, any strength in the job market is unlikely to change expectations for future easing unless it comes with other positive indicators, like upward revisions to past data or increased wage growth. If only the headline job growth beats estimates, but hourly earnings and labor participation remain weak, markets may disregard the report entirely. The long-term outlook for rates still leans toward the downside. Trade and tariff dynamics are crucial factors as well. With many trade negotiation deadlines approaching and a legislative calendar influenced by elections, fiscal uncertainty complicates the Fed’s responses. Any new policy suggestions from Washington could impact growth expectations and inflation predictions. As a result, traders have to account for this uncertainty when setting rate curves. From a practical standpoint, while today’s report could lead to short-term volatility in currency and front-end rate markets, the general outlook hasn’t changed much in the recent sessions. Futures indicate a path toward gradual easing rather than urgent measures. This suggests that there’s still some confidence in the underlying strength of the US economy, even if it’s showing signs of strain. We’re ready for immediate reactions in bond futures based on the data, but any significant movements will likely face pushback unless they align with the Fed’s messaging or additional data. Options markets indicate that volatility premiums are already set for today, suggesting any overreactions may reverse in the coming sessions. Traders will need more than a single report to significantly change the policy curve outlook. Unless Powell shows a stronger commitment to upcoming cuts, today’s report is more about confirming existing biases than changing them. The core view remains: softening economic output, ongoing global trade challenges, and political uncertainty are coming together to foster a gradual easing cycle. Any shift from this narrative will need to be supported by multiple data sets, not just one morning’s report. Create your live VT Markets account and start trading now.

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