September's nonfarm payrolls report came in far below expectations, pushing the odds of an October Fed pause to 77.9%. Yet Treasury yields and the Dollar Index both reversed higher by Friday's close, and the Federal Reserve curve still prices another hike by December — a sign markets are repricing when the Fed moves next, not whether it moves again.
Payrolls Miss, Revisions Deepen the Slowdown
Nonfarm employment slowed from a revised 133K in August to just 29K in September, far below the 90K consensus. Unemployment rose from 4.1% to 4.2%, while average hourly earnings growth slowed from 0.3% to just 0.1% month-over-month.
Prior revisions compounded the weakness: July was cut from +21K to -10K, and August was revised down from 162K to 133K, leaving the two months a combined 60K lower than first reported. That puts the July-September average at only about 51K jobs a month.
Fed officials had already signaled patience before the report arrived. New York Fed President John Williams said on September 29 that after September's rate increase there was "no need for urgency". Fed Vice Chair Philip Jefferson said on October 1 that future adjustments should depend on incoming data.
Yields Reverse Despite the Soft Print
Bonds told a different story than the headline number. The 2-year Treasury yield dropped as low as 4.695% before reversing to close around 4.827%. The 10-year yield likewise recovered from its post-NFP decline to end around 5.28%, with Reuters recording it about 4.7 basis points higher on the day.
Futures markets still captured the shift. The CME FedWatch tool put the probability of no change on October 28 at 77.9%, up from 35.8% a week earlier, with a hike priced at 22.1%. But for December, 4.00%-4.25% remains the modal outcome at 67.3% probability, implying one further 25 basis-point hike from the current range.
Dollar Holds Structure on Two Supports
The Dollar Index initially fell after the payrolls release but finished the week around 101.92, with 101.026 holding as the key support level. A still-hawkish Fed curve is one tailwind; the other is Euro weakness, as the French-German 10-year spread widened to around 150 basis points, its widest since the euro-zone debt-crisis period, on investor concern over French fiscal and political risk.
That leaves September CPI and PPI as the next tests for the dollar's direction. A softer inflation print would strengthen the case for an extended pause; an energy-driven upside surprise would put December back at the center of the tightening debate.
Source: ActionForex
Trading involves risk.
Risk Disclaimer
