Commerzbank said the delayed US labour market report will likely be the main driver of US interest rates and the US Dollar. This follows a sharp move in US Treasuries after last week’s JOLTS data. The bank also said December payrolls were weaker than expected.
Commerzbank’s economists expect a bigger increase in payrolls in the next report, but they still see the overall pace as soft. They added that markets are very sensitive to labour data.
Commerzbank said it would take a much larger downside surprise to push short-term US yields meaningfully lower for long. The bank noted that markets are currently pricing in three Federal Reserve rate cuts this year, and that yields across the curve are back near their early-January lows.
The article says it was created with help from an artificial intelligence tool and reviewed by an editor. It also says the FXStreet Insights Team selects market observations and combines notes and analysis from internal and external sources.
Looking back to early 2025, the market was pricing in about three Fed cuts for that year. But the labour market held up better than expected in the second and third quarters and often beat forecasts. As a result, the Fed delivered only one 25-basis-point cut in December 2025, and the broader easing cycle started later than expected.
Because of this, markets are even more focused on jobs data as 2026 begins. The January jobs report showed payrolls rising by a slightly weak 175,000, while wage growth stayed firm at a 4.1% annual rate. This combination has increased uncertainty. It also supports the Fed’s cautious approach, so any surprise in upcoming reports could move front-end rates sharply.
In the next few weeks, we see value in trades that benefit if rate volatility jumps. For example, buying options such as straddles on SOFR futures ahead of the next employment report could position for a large move in either direction. A much bigger downside miss in payrolls would likely be needed to bring forward expectations for rate cuts at the March and May 2026 meetings.
The yield curve has flattened a lot since the end of last year as investors adjust to the Fed’s patient stance. We think this creates an opportunity to position for a re-steepening, which could happen if the data pushes the Fed to signal a faster pace of cuts. One way to express this view is to go long front-end government bond futures and short longer-dated futures.
here to set up a live account on VT Markets now
