Rate-Cut Bets Resurge as US Job Losses Signal Economic Softening—Currencies and Commodities React

The greenback is showing cracks today as fresh signs of labor market deterioration reshape Federal Reserve expectations. The dollar index (DXY) slipped -0.13%, caught between competing forces: weakness in employment data that bolsters the case for rate cuts, offset partially by unexpected strength in housing sentiment and equity market volatility.

Labor Market Data Triggers Rate-Cut Repricing

The catalyst? ADP’s report that US employers shed jobs at an average pace of 2,500 weekly over the four weeks ended November 1. This deterioration immediately shifted probability-weighted expectations for the December 9-10 FOMC meeting—rate-cut odds held at 49% as of today’s close, though momentum has been choppy following earlier Fed hawkish commentary.

Supporting this narrative, US initial jobless claims came in at 232,000 for the week ended October 18, while continuing claims ticked up +10,000 to a 2-month high of 1.957 million. These labor market shed signs suggest the employment backdrop is cooling, even as other data points deliver mixed signals.

The NAHB housing market index provided a brief counterweight, unexpectedly rising +1 point to reach a 7-month high of 38 in November—more resilient than the flat expectations of 37. US factory orders also printed as expected at +1.4% month-on-month. Yet these bright spots remain eclipsed by labor softness in driving near-term policy expectations.

Currencies Recalibrate on Policy Divergence

EUR/USD recovered +0.09% as the euro capitalized on both US labor weakness and deeper central bank divergence. The ECB is largely finished tightening, while the Fed faces pressure to continue its easing cycle into 2026. Swaps assign only a 4% probability to an ECB rate cut at December 18, emphasizing this policy gap.

USD/JPY declined -0.10% after the yen staged a rally from fresh 9.5-month lows. Falling US Treasury yields sparked yen short covering, while a sharp -3% selloff in the Nikkei 225 triggered classic safe-haven reallocation toward the currency. Japanese government bond yields simultaneously climbed to 17-year highs, with the 10-year JGB touching 1.761%, providing additional support.

BOJ Governor Ueda’s dovish pivot—stating the central bank is “making gradual adjustments to the degree of monetary easing”—initially weighed on the yen but was ultimately overshadowed by safe-haven flows and yield strength. Markets price just a 28% chance of a BOJ rate hike at the December 19 meeting.

Precious Metals Pressured, Then Stabilized

December COMEX gold shed -16.60 points (-0.41%) and December COMEX silver dropped -0.481 (-0.95%), both sliding to 1-week lows as Fed rate-cut expectations initially deteriorated on recent hawkish commentary. The probability of a December FOMC rate cut had fallen to 48% from 70% earlier this month.

However, the employment data reversal provided a floor—today’s ADP report restored near-term easing expectations to 48% (up from 40% on Monday), limiting downside in bullion. Underlying support persists from central bank accumulation (China’s PBOC holdings climbed to a record 74.09 million troy ounces in October for the twelfth consecutive month of increases) and Q3 global central bank purchases totaling 220 MT, up 28% quarter-on-quarter per the World Gold Council. Long liquidation pressures stemming from mid-October highs continue to weigh, with gold and silver ETF holdings recently declining from 3-year peaks set on October 21.