US interest rate expectations shifted lower after a weaker-than-expected US jobs report for June prompted investors to reassess the Federal Reserve’s policy outlook.
The US economy added 57,000 nonfarm payrolls in June, below expectations, with prior months also revised lower. Wage growth came in at 0.3% month-on-month and 3.5% year-on-year, broadly in line with forecasts.
The unemployment rate edged down to 4.2%, though this was attributed to a decline in labour force participation rather than stronger hiring momentum.
Ipek Ozkardeskaya, Senior Analyst at Swissquote, described the release as influencing sentiment across markets, calling it “‘Welcomed’ weakness.”
She said the data was “soft enough to encourage the market to trim Federal Reserve (Fed) rate hike expectations for this year.”
Ozkardeskaya also noted the mixed nature of the report, pointing to the fall in unemployment driven by participation effects, and highlighted that softer oil prices and easing yields contributed to broader shifts in currencies and gold.
Kathleen Brooks, Research Director at XTB, also pointed to a significant repricing in rate expectations following the report.
“There is a positive tone to markets to end the week,” she said, adding that the payrolls data contributed to a sharp reduction in expectations for further tightening.
Brooks noted that “there is now virtually no chance of a rate hike in July,” and added that the probability of additional hikes later in the year had also fallen materially.
Both analysts believe that the outlook remains highly dependent on upcoming inflation data. Ozkardeskaya highlighted that the next US CPI release will be key in determining whether the shift toward a less hawkish Fed stance continues, while Brooks highlighted that the recent labour market slowdown has already driven a meaningful reassessment of policy expectations, with further direction likely to hinge on incoming macroeconomic data.