Fed in Standby Mode Despite Cooling NFP

The US jobs market is expected to slow, paving the way for the Fed to ease, although uncertainty remains about the timing of the cuts.

Coming in for a Landing

The Fed has insisted that the economy and the job market are solid. However, inflation risks persist, particularly about the impact of tariffs on consumers and the labour market situation, which could serve as a catalyst for rate cuts. After all, last year the Fed made a jumbo 50-basis-point cut following disappointing employment data. Just last week, Fed Chair Jerome Powell stated that the unemployment rate remains low but did not comment on a host of labour indicators that traders have been following closely. That includes falling NFP numbers over the last several months, fewer job openings and rising unemployment claims reaching a level not seen since the pandemic.

Adding to the downward pressure is the continued efforts of DOGE to trim Federal spending, which has led to a lack of new hiring and additional layoffs. However, June is expected to show a slowing in the number of federal job cuts. Increased deportations, coupled with slower immigration, could also reduce the number of jobs available since the NFP doesn't take into account immigration status. When the BLS conducts its survey, it asks employers how many people have been hired or fired. However, the unemployment rate is calculated based on the number of people seeking work as a percentage of the total labour force. This could explain why the NFP number has continued to sink, but the unemployment rate has remained relatively steady.

What's Moving the Market

The consensus among analysts is that the NFP will come in at 110,000 in June, below the 139,000 reported last month and also below the 159,000 that has been the average over the last year or so. The unemployment rate is also expected to rise to 4.3%, as previously reported. Regarding inflationary pressure, average hourly earnings are expected to increase by 0.3% over the month, down from 0.4% previously. The Fed is likely looking for signs of a strong labour market, as this can cause inflation to persist and prevent a move towards lower rates.

Markets are pricing in around a 20% chance of a rate cut at the next meeting in July but over a 95% chance of a cut by the September meeting. A sudden softening in labour data could cause markets to revise upward those expectations. The dollar has been generally weaker after some safe-haven traction during the Iran-Israel war. However, the EURUSD has resumed its downward trend as markets expect the ECB to pause its easing cycle, just as those lowering rates have done. The uncertainty surrounding trade policy has led to the dollar being sold and the euro being bought for most of the time, resulting in the greenback's substantial decline against its counterpart.

EURUSD Heading to 1.2000?

The long-term chart of EURUSD shows the pair in a bull market since early 2025, when prices bottomed out at 1.0170. Since then, it has been trending higher, with the 20-week VWAP indicating a target of 1.1927 next. Although a rejection can be expected at the 1.2000 hurdle, the next resistance lies at the May 2021 peak of 1.2265, where the ‘autotrend’ begins. The descending trendline highlights the 1.0966 (~1.1000) level, which is situated below the middle VWAP at 1.1161. However, given last week’s open at 1.1460 and April’s peak at 1.1575, the pair has plenty of time to reveal whether the long-term trend shifts. Notably, the short-term price action indicates an overbought RSI on the weekly chart, suggesting a potential pullback, although there is no divergence on the indicator.

Source: SpreadEx | EURUSD

Key Takeaways

Payrolls are expected to slow down to 110,000 jobs from 139,000 in May and the average of 159,000 over the past year, with the unemployment rate expected to rise to 4.3%. Missing expectations could prompt the Fed to ease despite its insistence that the economy and job market remain strong. As risks concerning the impact of tariffs on consumers and the labour market persist, a sudden softening in labour data could cause markets to revise rate cut expectations upward and weigh on the dollar in favour of the euro.