By Frank Walbaum, Market Analyst at Naga
The U.S. dollar advanced on Wednesday as Treasury yields climbed across the curve. The rebound comes as mixed signals from the labor market failed to materially shift expectations for Federal Reserve policy, allowing both the dollar and yields to stabilize after recent weakness.
The delayed US jobs report painted an uneven picture. Payroll growth in November exceeded expectations, with the economy adding 64,000 jobs, compared to forecasts of 50,000. However, October figures were sharply revised lower, while the unemployment rate rose to 4.6%, its highest level since 2021, underscoring lingering fragilities in the labor market. Weekly ADP data showed private employers added an average of 16,250 jobs in the four weeks ending November 29, marking a second consecutive period of job gains and hinting at a tentative rebound in hiring after a prolonged soft patch. Still, the data distortions caused by the 43-day government shutdown continue to complicate the assessment of underlying momentum.
Markets continue to price roughly a 75% probability that the Fed will keep rates unchanged at its January meeting. Attention now turns to Thursday’s inflation data, which is expected to show broadly stable price pressures. An upside surprise could further support the dollar and yields, while any deceleration would likely revive expectations for earlier or deeper easing, weighing on both.
Beyond the US, a busy slate of global central bank decisions looms. The European Central Bank is expected to hold rates steady, the Bank of England is likely to deliver a rate cut following the Fed’s recent easing move, while the Bank of Japan is anticipated to raise rates to their highest level in decades, a divergence that could inject additional volatility into currency and bond markets toward the end of the week.