Can Weak Jobs Trigger 50bps Cut, Sink USD?

Next week’s job reports could be the decisive factor in determining the scale of the Federal Reserve’s rate cut in September.

Bank of America, among others, had initially forecast a 25-basis point cut next month. But recent developments have sparked discussions about the possibility of a larger 50 bps reduction, as economic conditions continue to evolve.

Recent figures point to a gradual cooling in demand for labor. With the JOLTS job openings report and the Non-Farm Payrolls (NFP) data due next week, investors will be closely monitoring the labor market for signs of further weakness, with unexpected weakness boosting expectations of a 50-basis point (bps) cut.

However, recently upwardly revised GDP figures for the second quarter—now at a 3.0% annualized rate—have done some work to temper expectations for a more aggressive cut. Thus, the market firmly remains in the dark about the size of the rate cut.