Non-farm payrolls fall short of expectations, US dollar fragility begins to show! Trump’s impact has not yet fully emerged! ?

The first non-farm report of Trump’s presidency released on Friday showed that US job growth accelerated in February and the unemployment rate rose slightly to 4.1%, but the increased uncertainty of trade policy and the large-scale layoffs of the US federal government may weaken the resilience of the labor market in the coming months. The seasonally adjusted non-farm payrolls in the United States in February increased by 151,000, less than the expected 160,000. The total number of new jobs in December and January was 2,000 lower than before the revision. In addition, the US unemployment rate in February was 4.1%, higher than the expected 4%, the highest since November 2024. The annual rate of average hourly wages in the United States in February was 4%, lower than the expected 4.1%, and the previous value was revised down from 4.10% to 3.9%; the monthly rate was 0.3%, in line with expectations, and the previous value was revised down from 0.5% to 0.4%.

The Bureau of Labor Statistics said employment was on the rise in health care, financial activities, transportation and warehousing, and social assistance, while federal government employment fell. Analysts noted that the decline in government payrolls was relatively small in the overall report, at just 10,000. Notably, the U.S. manufacturing sector added 10,000 jobs in February after losing jobs in January and December, a positive sign. But economists warned that the Trump administration’s erratic trade policies make it difficult for companies to plan ahead. Business and consumer confidence have plummeted since January, wiping out all the gains made since Trump won the election last November, while the stock market has also suffered a sell-off.

Intermittent government funding freezes have left some contractors and employees who receive federal grants jobless. Because much of the recent job gains have been in low-wage industries such as leisure and hospitality, it could exacerbate what some economists call a white-collar recession. Some economists say U.S. employment could fall by more than 500,000 people by the end of the year because of federal layoffs and their spillover effects on the broader economy. Trump is also deploying tariffs, with Alcoa warning that tariffs could lead to 100,000 job losses. In addition, any move to restrict immigration or send immigrants home would limit a major source of job growth in recent years.

Bond investors are wary of any signs of weakness in the U.S. economy in Friday’s jobs report as they assess whether the recent rally in Treasuries has further upside. The 10-year Treasury note was headed for its first weekly drop in nearly two months ahead of a key labor report that will provide clues on whether Trump’s trade wars and moves to cut the size of the government workforce are hurting jobs and enough to justify the Federal Reserve restarting rate cuts. Treasury yields have risen after four of the past five nonfarm payroll reports.

This is a key test for the Treasury market. Treasuries have risen 2.2% this year as traders increase bets that a slowing economy and uncertainty about Trump’s policies will force the Fed to ease monetary policy again. The Fed last cut interest rates in December. Some traders believe that there is about a 50% chance that Fed officials will cut interest rates by 25 basis points at the May meeting, and the market will not fully digest the first rate cut until June. Overall, they expect the Fed to ease about 73 basis points in the rest of 2025 – slightly less than three rate cuts.

Recent expectations of further rate cuts from the Federal Reserve could inject confidence into bullish investors after concerns in recent days that the bond rally was overdone. Strategists at JPMorgan Chase & Co. advised clients to short two-year Treasury notes, in part because bullish positions were “too aggressive.” In the options market, some traders who had been betting on further bond gains, or even that the 10-year Treasury yield would fall below 4%, have begun to close their positions to take profits. The two-year Treasury yield, which is most sensitive to Fed policy, hit a five-month low of 3.84% this week before rebounding. As of press time, the two-year Treasury yield was around 3.95%, while the 10-year yield was around 4.27%.

Economists surveyed by Bloomberg expect the February jobs report to show a pickup in job growth and a steady unemployment rate at 4%. But some point to the risk that government job cuts, led by Musk’s Department of Government Efficiency (DOGE), will trickle down to the broader economy. This week’s events further underscore the appeal of foreign exchange as an asset class. Separate narratives in the U.S. and Europe are narrowing the gap between growth, interest rates and currency valuations. The new U.S. administration’s highly uncertain tariff policy is undermining confidence and weighing on activity. As seen during Brexit, uncertainty caused a sharp fall in U.K. investment, but it quickly rebounded even after what was seen as a bad trade deal was signed.

The US may be facing a similar situation, with businesses and consumers craving certainty that is currently unsatisfied. Recent weak US economic data, coupled with the decline in US stocks since the beginning of the year, has caused short-term US swap rates (critical for dollar pricing) to fall 45 basis points from last month’s peak. The market currently expects the Fed’s terminal interest rate to be below 3.50% in the easing cycle. Although this expectation may be a bit too fast, the February non-farm payrolls data to be released tonight will provide more clues. The market generally expects an increase of 160,000 in the non-farm population, and the unemployment rate is expected to remain low at 4.0%. Weather factors and changes in government education funding may have a drag on the employment data, and the impact of DOGE government layoffs may take several months to be seen.

The dollar is in a fragile state and weak employment data will deal a further blow to it. The dollar index is expected to record its biggest weekly drop since November 2022, and current dollar long positions are far from the level at the end of 2022. Analysts point out that 104.00 is a key support level for the dollar index, but unless the employment data is significantly lower than expected, it may consolidate in the 103.75-104.50 range today. Given this week’s events and the high weight of the dollar index against European currencies, analysts say it can be considered that the dollar index has peaked this year.

After the release of non-agricultural data, spot gold continued to rise, and the short-term gains expanded to nearly $15, now at $2922.94 per ounce. The US dollar index fell more than 20 points in the short term and then rebounded. Non-US currencies rose, the euro rose nearly 30 points against the US dollar in the short term, the pound rose nearly 40 points against the US dollar in the short term, the US dollar fell more than 20 points against the Canadian dollar in the short term, and the US dollar fell more than 40 points against the Japanese yen in the short term. US short-term interest rate futures fell. US interest rate futures traders are now betting that the Fed will have to wait until June to resume cutting interest rates, but still expect the Fed to cut interest rates by about 75 basis points this year.

In general, the global foreign exchange market is at a critical turning point. The vulnerability of the US dollar has increased, the revaluation of the euro has begun, and the Canadian dollar and Central and Eastern European currencies are facing short-term fluctuations but medium-term bullish prospects. Investors should pay close attention to policy changes and economic data, and flexibly adjust their strategies to cope with uncertainties.