Fed Hike Bets Rise Ahead of Jobs Data (29 June – 3 July)

Global markets entered the week with investors focused on the upcoming US labor market report, which is expected to provide the next major signal for Federal Reserve policy. The US dollar remained near its highest level in more than a year after last week’s strong rally, supported by hawkish comments from Fed Chair Kevin Warsh and growing expectations of further monetary tightening. At the same time, renewed military clashes between the United States and Iran in the Strait of Hormuz briefly reignited inflation concerns before both sides agreed to suspend military action ahead of another round of peace talks in Doha.

The macro backdrop remains driven by the balance between resilient economic activity and persistent inflation risks. Traders now expect three Federal Reserve rate hikes this year, with the probability of the first increase in September exceeding 60%. While the ECB recently delivered a 25 basis point rate hike and the Bank of Japan continues to signal further policy normalization, geopolitical developments and energy prices remain key variables for inflation expectations across global markets.

Market Drivers & Catalysts

• Fed Rate Expectations: Hawkish comments from Fed Chair Kevin Warsh reinforced expectations for tighter monetary policy. Markets now anticipate three Federal Reserve rate hikes this year, with the probability of the first move in September exceeding 60%.
• US Jobs Report in Focus: Investors are waiting for this week’s employment data to assess the strength of the labor market and the Fed’s next policy steps.
• Middle East Developments: Fresh clashes between the US and Iran around the Strait of Hormuz temporarily lifted oil prices before both countries agreed to halt military operations ahead of peace negotiations in Doha.
• Inflation Concerns Persist: Higher oil prices continue to support inflation risks despite improving diplomatic prospects.
• Global Central Banks: The ECB raised interest rates by 25 basis points this month, while the Bank of Japan continues to signal additional tightening following stronger domestic economic data.

Fixed Income

• US 10-Year Treasury Note Yield: Held near 4.38% after last week’s decline as investors awaited the June employment report. Treasury markets remain focused on labor market conditions and their implications for future Federal Reserve policy.
• UK 10-Year Bond Yield: Rose to 4.7379%, gaining 3 basis points on the day. The yield remains 11.8 basis points below last month’s level but stands 22.6 basis points higher than a year ago, reflecting the sharp increase since March 2026.
• Japan 10-Year Government Bond Yield: Increased to approximately 2.65%, ending a three-session losing streak. Strong May retail sales, which rose 5.3% year-on-year and marked the fastest growth since November 2023, reinforced expectations for further Bank of Japan tightening.
• Germany 10-Year Bund Yield: While no major move was reported this week, markets continue to monitor the ECB’s tightening cycle following this month’s 25 basis point rate increase and guidance that inflation remains on track to return to target over the medium term.

Commodities

Gold slipped to around $4,050 per ounce, ending a two-session rally as renewed fighting between the United States and Iran pushed oil prices higher and revived inflation concerns. Iran struck a container vessel, a ship carrying Qatari oil, and military facilities in Kuwait and Bahrain before both sides agreed to suspend military operations ahead of peace negotiations scheduled for this week in Doha.

Silver declined to approximately $58.5 per ounce, ending a two-session recovery. Renewed hostilities in the Strait of Hormuz pushed oil prices higher, increasing inflation concerns and weighing on precious metals.

Currencies

• U.S. Dollar Index (DXY): Traded near 101.3 after last week’s rally to its highest level in more than a year. Investors remain focused on this week’s US employment report, while markets increasingly expect three Federal Reserve rate hikes this year.
• Euro: Slipped below $1.14, trading near its weakest level since June 2025. A stronger US dollar continued to pressure the single currency despite the ECB’s recent 25-basis-point rate increase. President Christine Lagarde maintained that inflation remains on track to return to target and rejected the need for more aggressive tightening.
• British Pound: Rose marginally to 1.3203 on June 29, gaining 0.04% on the day. However, sterling remains down 1.87% over the past month and 3.85% over the past year. For historical comparison, the pound reached an all-time high of 2.86 in December 1957.
• Japanese Yen: Held near 161.7 per dollar, remaining close to levels last seen in 1986. Despite strong domestic data, including May retail sales growth of 5.3%, the fastest pace since November 2023, the currency remained under pressure from dollar strength. Markets continue to expect further Bank of Japan rate hikes.

Economic Calendar Highlights

• UK Q1 GDP (QoQ and YoY)
• US Chicago PMI
• JOLTS Job Openings
• CB Consumer Confidence
• Eurozone Preliminary CPI
• US ADP Nonfarm Employment Change
• S&P Global Manufacturing PMI
• ISM Manufacturing PMI
• ISM Manufacturing Prices
• Crude Oil Inventories
• US Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings
• Initial Jobless Claims
• US Independence Day (July 3)