Traders raise Fed rate hike bets after robust US payrolls, boosting the dollar and pressuring bonds and gold.
The policy-sensitive 2-year yield surged to 4.95%, fully pricing in two additional quarter-point hikes by September. The move reflected traders' conviction that the labor market's strength warrants more tightening.
The 2-year yield is the most sensitive to Fed policy changes. Its surge indicates that markets expect aggressive rate hikes in the near term.
5.00% is the next psychological level. If the Fed keeps hiking, it could reach 5.25%, but that would depend on inflation and jobs data.
The benchmark 10-year yield jumped to 4.55% as traders sold Treasuries on expectations the Fed will keep rates higher for longer. The strong employment report reduced the odds of a rate cut this year.
Strong employment suggests the economy can withstand higher borrowing costs, prompting the Fed to maintain a restrictive stance. Investors demand higher yields to compensate for the risk of prolonged tightening.
The 4.60% level is a key technical hurdle; a break above could push yields toward 4.75%. Support is at 4.40%.
DXY rallied to a three-week high above 105.50 after the payrolls beat, as traders repriced the path of Fed policy to include two more rate hikes this year.
The dollar typically strengthens when rate expectations rise because higher yields attract capital inflows. The report cements the Fed's hawkish stance, making the greenback more appealing against currencies with lower rate trajectories.
Immediate resistance sits at 105.80, with a break above opening the door to 107.00 if labor market momentum continues.
It depends on upcoming inflation data. If price pressures moderate, the Fed may pause, capping dollar gains.
The dollar strengthened against the yen as the rate differential widened further. USD/JPY climbed to 145.00, a level not seen since late 2022.
The rate hike bets elevate US yields, while the Bank of Japan sticks to near-zero rates, widening the interest rate differential that favors the dollar.
145.50 is immediate resistance, with 146.00 as a psychological barrier. A break above could accelerate buying.
Gold dropped as rising real yields and a stronger dollar reduced the appeal of the non-yielding metal. Spot gold fell to $2,280 per ounce, its lowest in two months.
Higher interest rates increase the opportunity cost of holding gold, which offers no yield. Additionally, a stronger dollar makes gold more expensive for foreign buyers.
Long-term bulls may view the dip as an entry point, but short-term momentum favors further weakness unless macro conditions shift.
Equities sold off as the hot labor print reinforced the narrative that the Fed won't pivot soon. Higher-for-longer rates compress equity valuations and raise the cost of capital for companies.
Good economic news becomes bad news for equities when the Fed is in tightening mode. Robust hiring removes the urgency for rate cuts, making bonds more attractive and increasing the discount rate on future earnings.
Growth stocks, especially tech, suffer the most as their valuations rely on low rates. Defensive sectors like utilities may outperform.
A stronger-than-expected employment report prompted traders to price in additional Fed rate hikes for this year. The dollar rallied against major peers as yields surged on the tightening bets. Markets now see a near-certain rate increase at the next meeting.
Nonfarm payrolls rose by 250,000, surpassing the 180,000 forecast, while wage growth accelerated to 0.4% month-over-month.
The dollar strengthened, bond yields jumped, and stocks fell as traders priced in a higher probability of a July rate hike.
Fed funds futures now imply an 85% chance of a quarter-point increase at the July meeting, up from 60% before the data.