Labor Market Weakness Drives Rate Cut Bets
The Unemployment Rate increased to 4.4% from 4.3%. The Labour Force Participation Rate slipped to 62%. Wages rose despite softer hiring. Average Hourly Earnings increased 0.4% month on month and 3.8% year on year. Other US data also softened. Retail Sales fell 0.2% month on month in January. Geopolitical tension increased after US President Donald Trump said there would be “no deal with Iran except unconditional surrender”. The US Dollar Index was near 99.00 and flat on the day.SnB Intervention Risk May Limit Franc Gains
Swiss National Bank Vice-President Antoine Martin said the SNB is ready to intervene in foreign exchange markets. The aim is to prevent excessive Swiss Franc appreciation. The sharp contraction in US jobs is a significant development, catching markets off guard. We’ve seen this directly impact rate expectations, with the probability of a 25-basis-point Fed cut at the April meeting now surging past 70%, according to the CME FedWatch Tool. This fundamentally weakens the outlook for the US dollar against safe-haven currencies. Rising tensions with Iran are amplifying the flight to quality, directly benefiting the Swiss Franc. The US Dollar is getting some safe-haven bids against other currencies, but the Franc is the clear winner in this environment of uncertainty. This dual-driver of weak US data and geopolitical risk is pushing USD/CHF lower toward its 2025 lows. However, we must be cautious as the pair approaches the 0.7700 level. The Swiss National Bank’s warning carries weight, especially after its surprise intervention in the third quarter of 2025 when the pair last tested these lows. This creates a potential floor, making outright short positions risky as we move forward. This conflict between bearish US fundamentals and the threat of SNB intervention suggests a rise in volatility. Implied volatility on one-month USD/CHF options has already jumped to its highest level since the banking sector turmoil of last year. Therefore, using options to define risk, such as buying puts on USD/CHF, seems more prudent than holding a direct short position. The persistent wage growth, now at 3.8%, continues to complicate the Federal Reserve’s path. We remember how the Fed held rates steady through most of 2025, citing similar wage pressures even as other growth indicators softened. This history suggests the Fed may be slow to act, which could temper the US dollar’s decline in the coming weeks. Create your live VT Markets account and start trading now.
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