The curious reaction to US jobs data
|With US jobs data yesterday exceeding all, admittedly very low expectations, the initial exuberance with which traders started the day, pricing in 6 extra basis points of cuts just in the morning, was quickly overturned. Jobs added for January came in at 130,000, the first time monthly jobs added has topped 100,000 since April 2025. Despite an alarming rise in US home delinquencies, which last month reached their highest rate since 2016, core US data continues to defy gravity.
Unemployment even fell to 4.3%, amidst expectations of a hold at 4.4% and during a time when companies are shedding employees despite record profits. However, despite this show of resilience, the Dollar Index is presently trading softer than it was on Wednesday morning.
On the surface, there seems to be a clear disconnect, certainly, the DXY’s slide was entirely recovered and expectations of a cut at the Fed’s March meeting fell from 22% to just 6%. The expectation of the overall reduction in the Fed base rate this year dropped from 60bps to 53bps, 5 of which come from the wipe out in bets of the March meeting.
And so, the market is only expecting less cuts in the first half of the year, when Powell is still Chairman, although have maintained or increased their bets for when Warsh takes the helm. This changing of the guard at the Fed and the degree to which it obscures the Fed’s rate path this year means every release has to be examined twice.
Certainly, Wednesday’s data is sufficient to convince Powell and the present FOMC to hold rates steady, but Warsh remains an unknown commodity. The market is clearly suspecting that despite initial USD strength surrounding his announcement as the next Chairman, Warsh will ultimately toe Trump’s line and bring rates down at a quicker pace.
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