Non-farm employment data release imminent; USD trajectory and interest rate cut expectations become market focus

Next Tuesday’s US employment report will become a focal point in the market. The US Bureau of Labor Statistics will release the first major employment data since the government restart on December 16, including partial employment statistics for October and the full version of November non-farm payroll data.

Divergent Market Expectations for Employment Data

According to statistics, traders and investment institutions have differing forecasts for this non-farm employment report. The market generally estimates that non-farm employment in October will decrease by 10,000 jobs, but expects a significant rebound in November, with an increase of 130,000 jobs. However, Citigroup economists have a different view, believing that the data rebound may be closely related to seasonal adjustments rather than reflecting an actual improvement in labor demand.

Kevin Flanagan, Head of Fixed Income Strategy at WisdomTree, pointed out that this week’s employment report might carry less weight, as data collection difficulties caused by the government shutdown further complicate the statistical process. He stated that future focus should shift to the data released early next month. The US Bureau of Labor Statistics is scheduled to release the December non-farm payroll report on January 9, 2026.

Federal Reserve Rate Cut Expectations Become a Key Market Variable

The latest Federal Reserve dot plot indicates that only one rate cut is expected in 2026. However, the CME FedWatch tool shows a discrepancy between market traders’ expectations and the Fed’s signals — traders are betting on two rate cuts next year.

According to the latest CME FedWatch data, the market expects the Fed’s next rate cut to occur in April 2026, with a 61% probability. George Catrambone, Head of Fixed Income at DWS Americas, said, “Interest rate trends will be directly influenced by labor market performance, making this Tuesday’s non-farm employment data crucial.”

Non-Farm Employment Data Will Trigger Market Chain Reactions

Analysts point out that the upcoming non-farm employment data will be a key driver for the US dollar, US stocks, and gold markets.

If employment data exceeds expectations, it will reinforce market expectations that the Fed will keep interest rates stable for longer, leading to a US dollar appreciation and downward pressure on US stocks and gold.

If employment data underperforms, it will increase market expectations for an accelerated rate cut cycle, leading to US dollar depreciation and providing upside potential for gold and US stocks.

Diverging Views on the US Dollar Outlook

Regarding the impact of non-farm employment data on the US dollar exchange rate, different investment institutions hold contrasting views.

Morgan Stanley expects the dollar to decline by 5% in the first half of 2026, believing that “the market has ample room to price in a deeper rate cut cycle,” implying further weakening potential for the dollar.

Conversely, Citigroup maintains an optimistic stance. They believe that the US economic fundamentals remain strong and are likely to continue attracting international capital inflows, providing solid support for the dollar exchange rate. Citigroup stated, “We believe the dollar’s recovery cycle in 2026 has strong potential.”

The release of this non-farm employment data will provide important decision-making references for market participants, and the performance of various assets will largely depend on the employment market signals conveyed by this report.