Weekly Market Insights: US Jobs Growth and Inflation Shape Market Trends

The December 2024 US jobs report surprised markets with a significant gain of 256,000 new jobs, far surpassing expectations of 160,000. This beat came alongside a drop in the unemployment rate to 4.1%, down from November’s 4.2%. However, softer wage growth at 0.3% month-on-month (MoM) and 3.9% year-on-year (YoY) limited the US dollar’s (USD) follow-through rally.

Impact on the USD and Federal Reserve Policy

While robust job growth hints at a resilient economy, softer earnings growth signals potential challenges for inflation. The Federal Reserve (Fed) remains cautious, with markets now pricing in a single 25-basis-point (bp) rate cut by September 2025, compared to earlier expectations of more aggressive easing. Several major institutions, including Bank of America (BofA), now forecast the Fed to hold rates steady through 2025.

What’s Next: US Inflation Data in Focus

Traders should watch the December 2024 Consumer Price Index (CPI) release on Wednesday at 1:30 PM GMT. Headline inflation is expected to rise to 2.8% YoY, with core inflation holding at 3.3% YoY. Higher-than-expected inflation could delay rate cuts further, strengthen the USD, and push US Treasury yields higher.

Trading Strategy Takeaway

With sticky inflation and Fed rate policy in the spotlight, monitor USD pairs closely. Opportunities may arise if inflation data or Fed commentary shift market sentiment. Prepare to adjust positions to align with evolving market dynamics.

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