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Commerzbank analyst Bernd Weidensteiner highlighted that weaker-than-expected U.S. nonfarm payrolls for June and downward revisions to previous months' data have reduced pressure on the Federal Reserve to raise interest rates at its July meeting. The report noted that the unemployment rate rose to 4.1% in June, with only 206,000 jobs added, down from initial estimates. This slowdown in labor market growth suggests the Fed may maintain its current rate of 5.25-5.50% for now. The market is now pricing in a 70% probability of a rate hike in September, but the July meeting is expected to remain unchanged. The Fed's focus will shift to upcoming inflation data, particularly the July CPI report, to determine future policy direction.
For markets, the reduced rate hike expectations could ease pressure on the U.S. dollar, potentially weakening the USD against majors like the euro and yen. Traders should monitor the July CPI data, which will be released in early August, as it could trigger volatility in currency and bond markets. The Fed's dovish stance may also support risk-on assets like equities and commodities in the short term. However, persistent inflation risks could still lead to a rate hike in the third quarter.
Investors should watch for any shifts in Fed communication during the July meeting minutes and speeches by policymakers. The key focus will be whether the central bank views the labor market slowdown as temporary or structural. For global markets, the USD's trajectory will remain tied to inflation data and Fed guidance. Traders should also consider hedging strategies against potential rate volatility in the coming months.
