US ADP private payrolls rose by 63,000 in February. This was above the expected increase of 50,000. The figure measures estimated monthly changes in US private-sector employment. It is released by ADP and is often used as an indicator of labour market conditions.

Labour Market Remains Resilient

The ADP employment report came in hotter than expected, showing the labor market remains surprisingly resilient. This data point challenges the narrative that the economy is cooling enough to warrant imminent rate cuts from the Federal Reserve. We now must adjust our view, as this strength gives the Fed cover to hold interest rates higher for longer. This jobs data adds to a pattern of stubborn economic indicators we have seen this year. The latest CPI reading for January came in at a sticky 2.9%, well above the Fed’s target, and retail sales have also held up better than anticipated. Just last week, Fed Governor Waller stressed the need for more conclusive evidence of an economic slowdown before considering any policy easing. We remember how throughout 2025, a similarly resilient labor market consistently forced a repricing of rate cut expectations, causing sharp moves in fixed income. That period showed that underestimating the strength of the jobs market can be a costly mistake. The current situation feels very familiar, suggesting the market may again be too optimistic about the timing of the first cut. In response, we should be looking at options that bet against near-term rate cuts. This could involve selling June 2026 SOFR futures contracts or buying put options on them, positioning for the market to push back its easing timeline. The probability of a rate cut by mid-year has likely decreased with this jobs report. This tension between a strong economy and a hawkish Fed is a classic recipe for increased market volatility. We should consider buying protection or positioning for larger price swings in equity indices. Buying call options on the VIX index ahead of the official government payrolls data this Friday could be a prudent way to hedge against a sharp market reaction.

Stronger Dollar Tailwind

The renewed prospect of a hawkish Fed should also provide a tailwind for the U.S. dollar. We see an opportunity in buying near-term call options on the U.S. Dollar Index (DXY). This is especially compelling against currencies whose central banks are leaning more dovish, such as the Japanese Yen. Create your live VT Markets account and start trading now.

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