A ray of light in the dark realm. The January report on the US labor market turned out to be not just good, but very good. Employment increased by 130,000, doubling forecasts, and unemployment unexpectedly dropped from 4.4% to 4.3%. Considering that in 2025 only 15 thousand new jobs were created per month, the start of 2026 indicates clear progress. However, will the Fed pay attention to one data point? The market is in doubt, and EURUSD is riding a roller coaster.
According to the revised BLS data, employment increased by 1.5 million in 2024, rather than 2 million as previously estimated. In 2025, the indicator increased by 181 thousand, not by 584 thousand. Its average monthly growth rate was 15 thousand, not 49 thousand. We are talking about the weakest dynamics since 2003, excluding recessions.
However, people only see what they want to see. Donald Trump paid attention exclusively to the January statistics. The president said that the United States is once again a strong country and therefore should have low debt service rates. This will save trillions of dollars and balance the budget.
The problem is that the pleasant surprise of employment is becoming the trump card of the Fed’s inflation hawks. For example, Jeffrey Schmid, President of the Federal Reserve Bank of Kansas City, noted that easing monetary policy in the current environment will lead to the consolidation of high inflation. The bids must be kept.
The futures market agrees with him. The chances of a resumption of the monetary expansion cycle fell from 42% to 22% in April and from 75% to 58% in June. Derivatives have reduced the probability of two acts of monetary policy easing in 2026 from 76% to 69%. US Treasury bond yields rose, and EURUSD quotes collapsed to support at 1.1835.
What’s next? The Doves are not going to throw a white towel in the ring. FOMC Governor Stephen Miran still believes that there is a case for lowering the federal funds rate by increasing supply in the economy through deregulation. Bloomberg Economics maintains its forecast of four acts of monetary expansion in 2026 and expects inflation to slow down in the coming reports.
However, if the labor market has really stabilized, the Fed will keep borrowing costs at a high level for a long time. The ECB rate differential plays into the hands of the “bears” on EURUSD. American assets look more attractive than European ones, and money will flow from the Old World to the New.
