US Labor Market Signals Trigger Dollar Retreat Across Major Pairs

Weakness in American employment figures sent shockwaves through currency markets today, with the dollar index (DXY) sliding -0.13% as investors repriced expectations for continued Federal Reserve rate cuts. The catalyst: ADP’s report showing US employers shed an average of 2,500 jobs per week during the four weeks ending November 1, immediately shifting market focus away from hawkish central bank rhetoric.

Employment Data Reshapes Rate Cut Odds

The labor market deterioration painted a mixed picture. Weekly initial unemployment claims hit 232,000 for the week ended October 18, while continuing claims jumped +10,000 to reach a 2-month high of 1.957 million. This weakness in employment conditions reversed earlier momentum that had pushed Fed rate-cut probabilities down to 40% on Monday—swaps now price a 49% chance of a 25 basis point cut at the December 9-10 FOMC meeting.

However, the dollar found some support from brighter housing data. The November NAHB housing market index unexpectedly climbed +1 to a 7-month high of 38, defying expectations for no change at 37. Factory orders also performed in line, rising +1.4% month-over-month.

EUR/USD Capitalizes on Fed Divergence

The euro recovered +0.09% as central bank divergence widened between Washington and the eurozone. While the Fed faces pressure to ease further, swaps indicate just a 4% probability of a -25 bp ECB cut at December 18’s policy meeting—the rate-cut cycle in Europe appears largely exhausted. This structural difference bolstered EUR/USD, with traders betting on a steeper rate differential favoring the single currency through 2026.

Yen Stabilizes Amid Mixed Signals

USD/JPY retreated -0.10% after initially extending gains on dovish BOJ Governor Ueda comments about “gradual adjustments” to monetary easing. The yen’s recovery was fueled by three factors: a sharp -3% Nikkei plunge boosting safe-haven demand, falling US Treasury yields triggering short covering, and Japanese 10-year government bond yields reaching a 17-year peak of 1.761%.

Weakness in Japan’s Q3 GDP reading had created earlier nervousness about stimulus-driven debt expansion under Prime Minister Takaichi’s agenda. Markets now price a 28% probability of a BOJ rate hike at December 19’s meeting—a modest probability suggesting the BOJ remains cautious despite its easing pivot.

Precious Metals Face Headwinds From Rate-Cut Skepticism

December COMEX gold fell -16.60 (-0.41%) while December COMEX silver declined -0.481 (-0.95%), both touching 1-week lows. The decline reflected shifting expectations: rate-cut odds for December’s FOMC meeting tumbled from 70% earlier this month to 48% today following hawkish Fed commentary.

Yet today’s ADP employment weakness created a floor under gold and silver, as softer labor data reignited rate-cut expectations and weighed on the dollar. This dynamic illustrates how recession concerns continue supporting precious metals’ safe-haven appeal amid elevated geopolitical risks and uncertainty surrounding US tariff policy.

Central bank accumulation remains a structural bid. China’s PBOC boosted gold reserves to 74.09 million troy ounces in October—marking twelve consecutive months of increases—while the World Gold Council reported global central banks purchased 220 MT of gold in Q3, up 28% versus Q2. Despite these tailwinds, long liquidation since mid-October peaks and recent ETF outflows have pressured prices from higher levels.