The US job creation engine accelerated last month, weakening market expectations for at least two rate cuts from the Federal Reserve in the back half of the year. According to data just released by the Bureau of Labor Statistics, 147,000 jobs were added in June – representing a solid overshoot relative to the 110,000-position consensus forecast – and the unemployment rate unexpectedly ticked down to 4.1 percent, from 4.2 percent in the prior month. Job growth in the previous month was revised higher to 144,000, bringing the three-month average up to 150,000. Caveats were present – 73,000 jobs were added by state and local governments, and average hourly earnings climbed just 0.2 percent month-over-month, slowing from the 0.4-percent pace set in the prior month – but the report remained consistent with a tight labour market.

The “whisper” payrolls number was likely far lower. An update last week revealed that weekly new unemployment claims rose to 247,000—the highest level in seven months. On Tuesday, however, data from the Bureau of Labor Statistics illustrated a rebound in labour demand for May, with job openings unexpectedly climbing to 7.77 million—the most since November—while layoffs declined by 188,000. Then, yesterday, ADP’s monthly payroll report showed the private sector shedding 33,000 jobs in June, marking its first negative print in more than two years. And a social media post from Donald Trump calling for Jerome Powell’s resignation at 3:10 PM yesterday afternoon—right around the time that he might have had early access to the payrolls number—also instilled some wariness in traders ahead of this morning’s release.

The dollar is climbing and Treasury yields are up across the front of the curve as traders pare bets on a move before the Fed’s September meeting. Odds on a July rate cut are now flirting with zero, and swaps markets have just 50 basis points in easing priced in by year end, down from 63 ahead of the release.

Although the dollar could weaken as nerves fray ahead of next week’s tariff deadline, we think a period of consolidation is in the offing, and are bracing for several upward reversals. In recent months, speculative positioning against the currency has grown increasingly crowded, meaning that a short squeeze could unfold if upcoming economic data releases point to renewed strength, inflationary pressures intensify, or tariff-led price increases force the Federal Reserve into adopting a more hawkish stance. Speaking at a conference in Portugal earlier this week, Chair Jerome Powell addressed the potential impact of tariffs, noting, “As long as the U.S. economy is in solid shape, we think the prudent thing to do is wait and learn more and see what those effects might be.”