Wave of Layoffs Triggers Market Caution, Fed Rate Cut Expectations Rise
The U.S. dollar faced a new round of selling during the Thursday U.S. trading session as investor sentiment turned cautious due to a weak labor market and a surge in layoffs. Latest data shows that U.S. companies laid off more employees in October than any other year since 2003, raising concerns over economic slowdown. Investors are increasingly betting that the Federal Reserve may initiate rate cuts by year-end.
According to data released by Challenger, Gray & Christmas, layoffs in October nearly doubled from the previous month, indicating that companies are actively cutting expenses to cope with economic pressures. Analysts note that this trend could signal a slowdown in job growth momentum, further dampening hopes for a soft economic landing. Following the layoff news, the U.S. dollar index continued to slide, falling below the 200-day moving average, as market risk appetite clearly cooled.
Bond Market Strengthens, U.S. Treasury Yields Decline Across the Board
Affected by weak labor data and policy uncertainties, U.S. Treasury yields declined across the board. The 10-year Treasury yield fell over 6 basis points to 4.09%, while the short end 2-year Treasury yield dropped to 3.57%, and the long-term 30-year yield slipped to 4.69%. The robust response in the bond market indicates that investors are reassessing future interest rate paths, with safe-haven funds quickly flowing back into fixed income assets.
Additionally, the U.S. Supreme Court has begun hearings on the Trump administration's "reciprocal tariff policy," with several justices questioning its legality. The market anticipates that if the policy is deemed invalid, it could help ease trade tensions and input inflation, further enhancing the appeal of U.S. bonds and exerting downward pressure on yields.
Rate Cut Bets Increase, Market Pricing Quickly Shifts
The Chicago Mercantile Exchange's (CME) "FedWatch Tool" indicates that investors’ expectations for a December rate cut have risen from 62% the previous day to nearly seventy percent, reflecting increased market confidence in easing policies. Analysts suggest that if the employment slowdown trend continues and inflationary pressures do not rebound, the Federal Reserve may signal easing earlier than expected to stabilize economic growth.
Several institutions highlight that the Federal Reserve's next policy statement may adjust its wording to hint at a "data-driven" flexible attitude. This move could prompt the market to preemptively price in rate cut expectations, leading to a weakened medium-term outlook for the dollar.
Major Currencies Strengthen in Tandem, Increasing Pressure on U.S. Dollar
As the dollar weakens, other major currencies have rebounded across the board. The euro rose above 1.15 against the dollar, the pound edged higher after the Bank of England kept rates unchanged, and the yen found support from rising demand for safe havens. The dollar fell to around 153.5 against the yen, hitting a new low for the week.
Forex analysts point out that although the eurozone economy remains under pressure, expectations of the European Central Bank pausing its rate hike cycle will stabilize policy outlook, supporting the euro's performance. The pound's rebound is attributed to the Bank of England's signal of maintaining high rates, which has further pressured the dollar in the major currency basket.
Technical Signals Weaken, Dollar May Continue Downward Trend
From a technical standpoint, as the dollar index falls below the 200-day moving average, market sentiment has clearly reversed. If the downtrend persists, the next support level is likely around 99.46, falling below which could open up further downside potential. Technical analysts believe that unless forthcoming inflation or retail data shows unexpectedly strong performance, the dollar is unlikely to recover its upward trend in the short term.
Overall, the surge in layoffs, the strengthened bond market, and increased rate cut expectations have placed the dollar under triple pressure. As investors await new economic data for guidance, the market is entering a phase characterized by volatility driven by risk aversion and easing expectations.
