Weaker US Jobs Data Shifts Fed Rate Hike Expectations
Markets are adjusting to a weaker-than-expected US jobs report, which has significantly lowered expectations for a Federal Reserve rate hike in October. September Nonfarm Payrolls rose by just 29,000, well below the anticipated 90,000, while the unemployment rate climbed to 4.2%. These figures, along with downward revisions to previous months, signal a softening labor market, prompting traders to slash the probability of a Fed rate increase from 70% to around 22%.
The initial market reaction saw Treasury yields drop, gold and Bitcoin surge, and the US Dollar Index fall. However, these moves were short-lived as yields rebounded, driven by concerns over inflation, oil prices, and government debt. This reversal created a split where short-term rate expectations softened, but long-term yields remained elevated, complicating the outlook for the US dollar and rate-sensitive assets like gold and technology shares.
The US Dollar Index initially dipped to 101.66 before recovering to 101.92, still below its pre-report level. The dollar's direction will be influenced by relative interest rates, growth expectations, and safe-haven demand. Meanwhile, EURUSD and GBPUSD could rebound if dollar selling resumes, with key levels identified for potential support and resistance.
Gold and Bitcoin both saw initial gains following the jobs report but reversed course as yields rebounded. Gold's opportunity cost increased, while Bitcoin's rally fizzled, highlighting the challenges of sustaining gains without stronger fundamentals. The S&P 500, however, held onto its gains, suggesting that investors view slower employment growth as supportive for equities, provided the slowdown remains controlled.