The debate on whether the FOMC should cut by 25 or 50bps could well become clearer by the end of the week when the non-farm payrolls data report for August arrives. There are plenty of economic indicators that point to a weakening labour market and if that is confirmed by a lower-than-expected print on Friday, it will likely trigger another big rates and dollar move given the OIS market pricing is currently well short of pricing in a 50bps cut at the meeting on 18th September, MUFG FX analysts note.

US inflation eases with FOMC focus now on jobs data

“Last week the consumer confidence data revealed an upturn in confidence but despite this the jobs index worsened and further underlined the prospect of the unemployment rate continuing to drift higher. The Fed’s thinking on the labour market certainly seems to have shifted following the benchmark revision of the NFP data that revealed a 818k downward revision to payrolls in the year to March 2024 – the second largest on record. That data may harden the Fed’s view on the unemployment rate rising and average hourly earnings growth slowing. Both of those indicators haven’t changed due to the NFP revision but will likely alter the Fed’s projections of labour market spare capacity that may shape the Summary of Economic Projections (SEP) to be released at the September meeting.”