The trend is clear in that the US labour market has been softening after a robust rebound in the post-Covid era. That is to be expected but we're now approaching the stage in which market players had been expecting this to lead to a soft landing in the US economy since last year.
Instead, the US economy has been rather resilient and that is also exemplified by the labour market - even if things are easing there.
As the Fed looks to pause the rate cut cycle, this will be a key area to watch in the months ahead. If labour market conditions hold up alongside inflation data, it will validate the Fed outlook to stay on the sidelines while letting for Trump's policies to play out.
But if the data worsens, then there will be cause for concern in pressuring the Fed to resume rate cuts to start the new year.
Given what is at stake, this will be the point on the agenda in trading today. Nothing else will matter as much.
For now, Fed funds futures are ruling out a 25 bps rate cut for later this month with ~93% odds priced in that the Fed will keep rates unchanged. The first full rate cut is only priced in for June with ~42 bps in total priced for this year. The swings, if any, in pricing here will be what dictates broader market sentiment before we get to the weekend.
This article was written by Justin Low at
www.forexlive.com.
