In July, the US added 73,000 jobs, according to the US Bureau of Labor Statistics. This was below the expected addition of 110,000 jobs and follows a revised increase of just 14,000 jobs in June. The unemployment rate climbed to 4.2%, up from 4.1%. The labor force participation rate slightly decreased to 62.2% from 62.3%. Yearly wage growth showed a small increase, with average hourly earnings rising to 3.9%, up from 3.8%. **Revisions for May and June Employment** Revisions for May and June show larger adjustments than usual. May’s employment was revised down by 125,000 jobs, and June’s was revised down by 133,000 jobs, making the total for these two months 258,000 jobs lower than initially reported. After the payrolls data was released, the US Dollar faced strong selling pressure. The USD Index fell 0.65% to 99.40. The Dollar was particularly weak against the Japanese Yen, with shifts against the Euro, Pound, and other major currencies as well. The latest job openings report showed 7.43 million available positions for June, according to the JOLTS report. In contrast, the ADP Employment Change report said the private sector added 104,000 jobs in July, with June’s loss revised to just 23,000 jobs. Signs indicate that the US job market is slowing down, changing our outlook for the weeks ahead. The July payroll number of 73,000 was a significant miss, but the huge downward revisions for May and June tell a more concerning story. This data suggests the economy is weaker than we thought. **Federal Reserve Policy Implications** This weakness in the job market may push the Federal Reserve toward a more lenient policy. With the unemployment rate rising to 4.2% and slow wage growth, the pressure to lower interest rates is growing. According to the CME FedWatch Tool, the probability of a rate cut in September has surged to over 70%, a major change from last week. For our currency strategies, we should expect continued weakness in the US Dollar. The Dollar Index has already dipped below 100, and this trend might continue. We recommend selling the Dollar against both the Japanese Yen and the Euro, utilizing futures or options to mitigate risk. This creates clear opportunities in interest rate derivatives. We believe taking long positions on 2-year and 10-year Treasury note futures is a wise strategy to benefit from the anticipated drop in yields. This is supported by June’s headline CPI falling to 3.1%, giving the Fed more flexibility to reduce policy rates without triggering inflation. The mixed signals of a slowing economy and potential support from the central bank are causing significant uncertainty. The VIX, which measures market fear, has jumped from a low of 14 to over 18 following the jobs report. Buying call options on the VIX or put options on indices may serve as a useful hedge against a possible economic downturn. This situation reminds us of the Fed’s policy change in 2019, when a slowdown in the job market led to a series of rate cuts to bolster the economy. Markets that anticipated the Fed’s shift at that time fared very well. We are now seeing a similar pattern emerge. Create your live VT Markets account and start trading now.

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