Markets slash September Fed rate hike odds below 50% after softer US employment data and downward revisions.
The US dollar extended losses after July’s weaker-than-expected employment report and downward revisions erased most bets for a September Fed rate hike. Markets now price less than a 50% chance of a move, down from 72% at the end of July, as labor softness shifts focus to the Fed’s dual mandate.
The 2s/10s Treasury yield curve steepened to 45 basis points, reflecting growing expectations of a slower tightening cycle. While one December hike remains priced, the sudden labor market cooling has sparked debate over inflation risks versus employment stability.
Technical levels are in focus, with the DXY index needing to hold its 200-day moving average at 99.18 to prevent further declines. The shift in Fed expectations has weighed on the dollar and lifted bonds, reshaping the outlook for FX and rates in the second half.