Dollar gains ahead of official US employment report
Signs of a healing labor market could weigh on Fed rate cut bets
Yen approaches yearly lows, could spark new intervention warnings
Wall Street mixed ahead of NFP, Oil rebounds on Iranian tensions
Is the US labor market healing?
The US dollar continued to gain against its major counterparts, even after the US jobless claims for last week increased somewhat.
It seems that investors are bracing for a decent employment report today, the first that will be reported normally after the US government shutdown. Expectations are for nonfarm payrolls to have accelerated somewhat to 66k from 64k the prior month, and for the unemployment rate to have ticked down to 4.5% from d 4.6%. Average hourly earnings are forecast to have accelerated to 3.6% y/y from 3.5%.
Following the rebound in private employment revealed by the ADP report, and the bounce back into expansionary territory of the ISM non-mfg employment sub-index, another rebound suggesting that the US labor market may have started healing could prompt traders to scale back their Fed rate cut bets, especially if wages accelerate.
Currently, investors are penciling in around 56bps worth of rate cuts this year, which translate into slightly more than two quarter-point cuts, contrasting the Fed’s latest dot plot, which pointed to only one. Amidst the upside revision to the Q4 GDP growth to 5.4% q/q SAAR from the Atlanta Fed GDPNow model, a strong jobs report later today could convince investors that fewer basis points worth of rate cuts may be needed and thereby allow the US dollar to extend its recovery.
Yen traders flirt with intervention zones
The yen is suffering the most today, perhaps as the geopolitical tensions between Japan and China and the slowdown in wage growth are making investors skeptical that the BoJ could hike rates again soon.
Dollar/yen is approaching the high of December 19 at 157.77. A break above that level will send the pair to territories last seen a year ago and may trigger fresh intervention warnings by Japan’s finance ministry.
Wall Street closes mixed ahead of NFP data
On Wall Street, the major equity indices closed Thursday’s session mixed. The Dow gained some ground, but the Nasdaq lost. The S&P 500 closed virtually unchanged. Technology stocks dipped as a potentially strong NFP report today could mean higher-for-longer borrowing costs and lower present values, while defense companies advanced after US President Trump called for a larger-than-expected $1.5 trillion military budget.
With valuations remaining inflated, investors may be more cautious ahead of important data releases. However, there is no evidence that the AI bubble has burst. The drivers that pushed Wall Street to record highs in 2025 are still intact, especially with estimates pointing to astounding performance by the US economy.
Alphabet was among the few tech-giants that gained, a day after it surpassed Apple in market capitalization for the first time since 2019, becoming the second-most valuable firm in the US.
Oil rebounds strongly due to tensions in Iran
Oil prices rebounded strongly on Thursday as tensions in Iran flared up, raising concerns about Iranian oil output. A nationwide internet blackout was reported yesterday, as protests over economic hardships continued.
However, oversupply concerns remain as there is no limitation on how much Venezuelan oil will be sold in the foreseeable future, at a time when global inventories continue to rise. So, unless the situation in Iran escalates to something bigger, the rebound in oil prices is likely to remain limited and short-lived.