Nonfarm Payrolls Set to Test Market Bets on Fed Rate Cuts for July
Nonfarm Payrolls May Dampen Fed Rate Cut Expectations
The US labor market showed resilience in May, with Nonfarm Payrolls rising by 139,000, beating market expectations of 130,000. However, the slight beat did little to alter market expectations regarding Federal Reserve (Fed) rate cuts in July.
Key Takeaways from the May Nonfarm Payrolls Report
- Nonfarm Payrolls increased by 139,000 in May, slightly above the 130,000 forecast.
- The Unemployment Rate remained steady at 4.2%, in line with market expectations.
- Average Hourly Earnings, a measure of wage inflation, held at 3.9% year-over-year, surpassing the 3.7% forecast.
Market Reaction and Fed Rate Cut Expectations
The data release had a muted impact on the market, with the US Dollar Index up 0.3% on the day. Market participants are keenly awaiting the Fed’s next move, particularly regarding potential rate cuts in July. According to the CME FedWatch Tool, there’s about a 30% probability of a 25 bps rate cut in July.
Implications for EUR/USD
A disappointing NFP reading below 100,000 could boost expectations of a Fed rate cut in July, potentially weakening the US Dollar against the Euro. Conversely, a strong NFP print could see the Fed maintain or raise interest rates, supporting the USD.
Future Developments and Takeaways
Upcoming economic data releases and Fed communications will be crucial in shaping market expectations for July’s Fed meeting. A sustained labor market growth could see the Fed maintain its current stance, while signs of slowing could revive rate cut bets.
