U.S. Jobs Data Falls Short, But Markets Remain Resilient Amid Fed Rate Speculation
Recent employment data shows the U.S. economy created far fewer jobs over the past year than expected, fueling speculation that the Federal Reserve may cut interest rates next week. Despite this, stock markets remain near record highs, and the dollar has held steady, even as investors weigh the possibility of a larger, half-point rate cut.
Geopolitical tensions have added to market uncertainty. Israel attempted to strike Hamas leaders in Qatar on Tuesday, while Poland shot down drones that violated its airspace during a Russian attack in western Ukraine on Wednesday, keeping investors on edge.
“The market seems convinced the Fed will lower rates, and rightly so. Much of that expectation is already priced in through the end of next year,” said Jane Foley, head FX strategist at Rabobank. “But the geopolitical risks, like the events in Poland and Qatar, are far from reassuring.”
The euro was muted against the dollar but climbed as much as 0.5% against the Polish zloty to 4.268, marking its largest one-day gain in three months at one point.
Traders are fully pricing in a quarter-point Fed cut next week, with only a small chance of a larger half-point reduction. Upcoming reports on wholesale and consumer inflation, due Wednesday and Thursday, could influence the likelihood of a bigger move.
“The bar for a 50-basis-point cut is high,” said Kieran Williams, head of Asia FX at InTouch Capital Markets. “Core inflation would need to surprise to the downside for the Fed to consider such a move. With service prices remaining sticky, a jumbo cut next week seems unlikely.”
Political uncertainty is also mounting. France and Japan both saw the resignation of their prime ministers this week, adding to concerns over the economic and political outlook in two major economies.
The euro traded near $1.1701 after a 0.5% drop in the previous session. The yen held steady at 147.47 per dollar, while the Swiss franc remained close to seven-week highs at 0.797 per dollar. The dollar index, which tracks the U.S. currency against six major peers, was unchanged, having fallen 10% this year amid trade and fiscal policy turbulence and concerns over central bank independence.
Markets showed little reaction to a court ruling that temporarily blocked President Donald Trump from removing Fed Governor Lisa Cook, a case likely headed to the U.S. Supreme Court.
Data released Tuesday also indicated the U.S. economy created approximately 911,000 fewer jobs over the 12 months through March than previously estimated, suggesting that job growth had already slowed before Trump’s aggressive tariffs on imports. The report provided limited insight into job creation since March, leaving interest rate expectations largely unchanged.
“I think a 50-basis-point cut could hurt sentiment more than help,” said Matt Simpson, senior market analyst at City Index in Brisbane. “The Fed is in a position to align with market expectations over the next three meetings, or delay larger cuts into 2026, without bowing to extreme pressure for a big move next week.”
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