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As oil prices soar and employment collapses, expectations of a Fed interest rate cut have ebbed?
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: Soaring oil prices coupled with a collapse in employment, are expectations of the Federal Reserve's interest rate cut ebbing?". Hope this helps you! The original content is as follows:
On March 9, spot gold was trading around US$5,080 per ounce in the Asian market on Monday. U.S. employment data that was far worse than expected kept the market’s hopes for the Federal Reserve’s interest rate cut alive. However, the recent trend of gold prices was suppressed by the strength of the U.S. dollar; U.S. crude oil opened higher on Monday and rose. The price range exceeded 30%, standing above US$110/barrel, reaching as high as US$116/barrel, touching the highest level since July 2022. Benefiting from the worsening conflict in Iran, oil production in Iraq and Kuwait has begun to shut down. Over the weekend, the United States and Iran took tough stances. At the same time, the Israeli military said it would target Khamenei's successor.
The U.S. dollar index fell in volatile trading on Friday as the latest data showed an unexpected decrease in U.S. non-farm payroll employment in February, triggering a repricing of the Federal Reserve's policy path.
The Swiss franc, a safe-haven currency, strengthened across the board last Friday, as the escalating conflict in the Middle East continued to drive safe-haven buying. USD/CHF fell 0.63% to 0.7757 Swiss francs. U.S. President Trump demanded Iran's "unconditional surrender" that day, further escalating geopolitical tensions and strengthening the Swiss franc's safe-haven appeal.
In terms of economic data, the number of non-farm jobs in the United States fell by 92,000 in February, which was far less than expected. After the data was released, market expectations for an interest rate cut by the Federal Reserve were brought forward. Interest rate futures show that the probability of the Fed restarting interest rate cuts in September has risen to 76%, while the market had previously expected October.
The U.S. dollar index fell 0.2% on Friday to 98.88. Despite the single-day weakness, the dollar still rose 1.3% last week, its largest weekly gain since mid-November 2024, supported by safe-haven inflows triggered by conflicts in the Middle East.
In terms of other major currencies, the euro rose against the U.S. dollar.It rose 0.1% to $1.1616, recovering its intraday losses, but it still fell 1.7% last week, the largest weekly decline since April 2024. GBP/USD rose 0.42% to $1.3411.
Asian Markets
China's consumer inflation rebounded sharply in February, showing new signs of improving domestic demand. Overall CPI rose 0.2% year-on-year to 1.3%, much higher than the 0.9% expected, marking the strongest growth in more than three years. On a monthly basis, prices rose 1.0% month-on-month, exceeding economists' expectations of 0.5%.
The surge in inflation is mainly driven by seasonal factors. The nine-day Lunar New Year holiday boosts domestic tourism and consumer spending, pushing up service prices and lifting the overall consumer price index (CPI). Core CPI, which excludes volatile food and fuel prices, strengthened to 1.8% year-on-year from 0.8% in January, indicating broader price pressures beyond the holiday effect.
Upstream price pressures also show signs of easing deflation. PPI increased from -1.4% to -0.9% year-on-year, the smallest decline since July 2024, and stronger than the expected -1.1%. Dong Lijuan, a statistician at the National Bureau of Statistics, said the easing of producer deflation reflected firm prices in advanced and emerging industries, as well as capacity management in key industrial sectors.
Japanese wage data at the start of the year provided an encouraging sign for the Bank of Japan. Real wages rose 1.4% year-on-year in January, rebounding from a -0.1% contraction in December and marking the first increase in 13 months. The improvement reflects a www.xmtraders.combination of stronger nominal wages and easing consumer price pressures, suggesting that the long squeeze on household purchasing power may finally be starting to ease.
Nominal wage growth is strong. Total cash earnings rose 3.0% year over year, beating estimates of 2.5% and marking the fastest pace of growth since July. Regular wages (basic wages) also rose by 3.0%, the strongest increase since October 1992. Overtime earnings rose 3.3%, the highest level in about three years, while special payments - mainly one-time bonuses - rose 3.8%.
Wage increases are enough to exceed the consumer inflation rate used by the Labor Department to calculate real wages, which fell to 1.7% year-over-year in January. This is the weakest price increase since March 2022, helped by government fuel subsidies and smaller increases in food prices.
Momentum in wage negotiations remains strong. Renren, Japan's largest trade union federation, said last week that its member unions are seeking an average wage increase of 5.94% this year. Previously, growth averaged 5.25% in 2025, the largest increase in 34 years, reinforcing expectations that wage growth will continue to be a core pillar underpinning domestic demand and the Bank of Japan's broader policy normalization narrative.
U.S. Market
U.S. labor market data brought a sharp downward surprise in February, with non-farm payrolls falling by -92,000, well below expectationsAn increase of 65,000 people. The report marked a major setback for the labor market outlook and contrasted with previous relatively solid indicators such as ADP and ISM employment data.
The report was also less detailed than expected. The unemployment rate rose from 4.3% to 4.4%, and the labor force participation rate fell by -0.1 percentage points to 62.0%.
In addition, wage adjustments were significantly negative, with the December data reduced by 65,000 to -17,000 and slightly reduced to 126,000 in January, further highlighting the weakening recruitment momentum.
Despite weak job growth, wage pressures remain firm. Average hourly wages rose 0.4% month-on-month, higher than the 0.3% expected, and annual salary growth remained solid at 3.8%. The average workweek remained unchanged at 34.3 hours.
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