As market expectations for a rate cut in the United States strengthen, weak employment data is putting pressure on the dollar and Treasury yields.

The U.S. employment data came in weaker than expected, and expectations among market participants for rate cuts by the United States have risen further. In response to this shift in outlook, both the U.S. dollar index and U.S. Treasury yields faced downward pressure.

Weak Employment Data Drives the U.S. Rate-Cut Scenario

The employment report released at the beginning of the month came in weaker than market expectations, providing an impetus that increased the odds of U.S. rate cuts. As the slowdown in employment gained attention, the market’s probability of implementing a rate cut by June rose even further. The accumulation of these expectations then ended up having a major impact across the broader financial markets.

The U.S. Dollar and Treasury Yields Are Sold at the Same Time

Against this backdrop, the U.S. dollar index closed down 0.2% at 98.85. The dollar had recorded gains of more than 1% over the week, but it has now entered a correction phase as market sentiment shifts.

In the currency market, the euro rose by about 0.1% versus the U.S. dollar, while the British pound saw buying of 0.4%. The dollar also tested higher levels versus the Japanese yen by about 0.1%, and overall, soft price action stood out.

Treasury yields were also sold in tandem with rising expectations for U.S. rate cuts. The yield on the 10-year Treasury temporarily fell by more than 4 basis points to as low as 4.105%, while the yield on the more rate-sensitive 2-year Treasury declined by 8 basis points to 3.519%. After that, yields narrowed their decline and wrapped up around 4.13% and 3.55%, respectively.

Going forward, the market will continue to closely watch how it is factoring in the likelihood of actual U.S. rate cuts, with attention focused on upcoming economic indicators and the central bank’s statements.