Rate Hike Expectations Cool on U.S. Employment Slowdown... Treasury Yields Drop, Gold Prices Rebound

U.S. Jobs Up by 57,000, Just Half of Forecasts
"Signal for Easing, Not Recession"
FedWatch Tool Lowers Odds of Rate Hike

The U.S. employment data for June fell far short of market expectations, weakening prospects for additional interest rate hikes by the Federal Reserve (Fed). While Treasury yields and the U.S. dollar declined, the prices of gold, silver, and Bitcoin rose. The market assessed that the slowdown in employment is not severe enough to signal a recession, but it does serve as a factor that lowers the likelihood of aggressive rate increases.

The yield on the U.S. two-year Treasury note, which is sensitive to short-term interest rates, dropped by more than 2.7 basis points (1bp = 0.01 percentage point) to 4.137% on July 2 (local time). The Dollar Index (DXY) stood at 100.96, having plunged to as low as 100.65 immediately after the employment data release before rebounding. The dollar-won exchange rate is currently trading down 0.2% at 1,537.61 won.

Amid dollar weakness and diminished expectations for rate hikes, gold prices surged. Spot gold rose 2.2% to $4,117.63 per ounce, while silver broke through the $61 mark from a seven-month low, jumping 3.8% during the session. The World Gold Council's (WGC) confirmation of a net central bank purchase of 41 tons in May also acted as a positive factor.

The risk asset market also responded positively. According to cryptocurrency data site CoinMarketCap, Bitcoin is currently trading at $61,527.59, up 2.75% from 24 hours ago. At one point, it even regained the $62,000 level.

The market fluctuated as U.S. employment data came in weaker than expected. The U.S. Department of Labor announced that nonfarm payrolls increased by 57,000 in June compared to the previous month. This figure is less than half of Wall Street’s forecast of 115,000, as compiled by Dow Jones.

However, the Financial Times (FT) pointed out that economists generally did not express major concerns about the current employment slowdown. This is because the pace of job gains, which had exceeded forecasts for three consecutive months, has slowed, but the increase still surpasses the 2025 monthly average of 10,000.

Following the release of the employment data, CNBC reported that the market has lowered expectations for further rate hikes. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the federal funds futures market is currently pricing in less than a 30% probability of a rate increase at the Federal Open Market Committee (FOMC) meeting on July 29. The probability of a hike in September has also dropped sharply from 66% to 51%. The chance of rates remaining unchanged this year has risen from 17% to 23% compared to the previous day.

Kevin Walsh, Chair of the U.S. Federal Reserve (Fed), speaks at a press conference following the Federal Open Market Committee (FOMC) regular meeting on the 17th of last month (local time). Photo by AP News Agency

The market has been paying close attention to remarks by Fed Chair Kevin Walsh, who has emphasized that inflation will not be overlooked, even if employment data is weak. At a recent European Central Bank (ECB) forum, he reiterated his commitment to achieving the 2% inflation target, stating, "Prices are too high."

Eric Winograd, Chief U.S. Economist at AllianceBernstein (AB), said, "While the report was weaker than expected, it is not absolutely poor," but also noted, "It will somewhat dampen the market's expectations that the Fed will raise rates immediately." Ian Lyngen, Head of U.S. Rates Strategy at BMO Capital Markets, also commented, "Even if inflationary pressures persist, it will be difficult to envision a scenario where the Fed raises rates in July."

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