Weak US Jobs Report Shifts Fed Rate Hike Expectations

The latest US jobs report revealed a weaker labor market than expected. Non-farm payrolls increased by just 29,000 in September, far below the 90,000 consensus forecast. This sharp decline followed significant downward revisions for August and July, removing 60,000 jobs from previous estimates. The three-month average payroll growth now stands at about 51,000, indicating a broader loss of momentum.

The unemployment rate ticked up to 4.2% from 4.1%, while wage growth slowed to 3.0% year-on-year. Markets quickly reacted, with the probability of a Fed rate hike in October dropping to 18% from 64%. December remains close to a 90% chance, as the Fed seeks more clarity before deciding on further increases.

A weaker payroll report reduces expectations for near-term Fed tightening, putting downward pressure on Treasury yields. This could support equities and gold while easing some of the dollar's recent strength. However, if inflation remains elevated, the Fed may face a challenging scenario of slowing growth and persistent inflation, making December more critical than October.

The dollar index is trading around 102.30, with a technical shift indicating a potential recovery. The key short-term pivot is the 101.40-101.50 area, while the rising trendline sits around 100-101. A sustained break above 103-105 could strengthen the recovery, while a break below 101 would weaken the structure. The real test for the dollar's direction lies ahead.