- The stock markets and other risk-associated assets were down today due to the surprise US Non-Farm Payroll data beat.
Here is why the market was down today. By markets, we refer to the risk-associated markets: stocks, indices, cryptos and risk-associated currencies such as the EUR, GBP and emerging market currencies such as the ZAR, WON, MYR, etc.
Today was the release of the Non-Farm Payrolls. This oddity resulted from the 44-day government shutdown that affected the operations of US government agencies, including the Bureau of Labor Statistics. The BLS is the agency that releases the NFP data, and the calendar distortion resulting from the shutdown means the NFP is being released on dates outside its traditional first Friday of the month to make up for lost time.
Today’s NFP data showed a better-than-expected Non-Farm Employment Change of 130K (consensus 66K, previous 48K), with unemployment improving from 4.4% to 4.3%. Average Hourly Earnings, the measure of wage inflation, came in at 0.4%, higher than the consensus of 0.3% and the revised prior number of 0.1%.
Given that the US Dollar has been pressured since late 2025 due to Fed easing expectations, an intraday rebound in US bond yields at the front end led to a sharp rise in the US Dollar. Traders have subsequently scaled back rate-cut expectations, which has been bearish for stocks and stock indices that typically do well in a low-interest-rate environment.
Typically, any data surprise to the upside that occurs within the context of an expectation of weakening or easing usually sets off a tightening of financial conditions. This puts pressure on equities even when the economy looks ok.
Furthermore, tech stocks dragged the markets down. AI-pointing stocks fell amid new concerns that the newer generation of AI tools was compressing the sales margins of traditional software companies, leading to negative earnings. This risk-off sentiment tends to spill onto the overall equities market, leading to broad-based selling.
Reasons for the USD Strengthening Today
1) Stellar employment data has dampened Fed easing expectations
The surprise NFP data, which came in much better than expected, has dampened near-term expectations of imminent Fed easing. This has brought back USD demand and pushed the US Dollar higher amid higher US yields versus peers.
2) Risk-off Hedge
Positions that used the US Dollar as a safe-haven hedge against jumpy stocks and the highly volatile crypto market selloff have caught a big break. These risk-off positional bets have paid off as the stock and crypto markets continue to bleed.
3) Rates + Safety Bets
The US Dollar Index had shown a recent bounce that was rejected at the 97.91 resistance, a prior low seen on 24 December 2025. However, the rejection move was less convincing, raising hopes for another bounce off a higher low. Today’s NFP news provided fundamental support for this move, following a Reuters report indicating potential gains against the Swiss Franc and the Euro. This is consistent with a rates-and-flight-to-safety playbook.
Positive US Data -> Boost in front-end yields -> hawkish repricing of Fed rate cuts -> USD up; equities/cryptos down.
What to Watch For
1) Look out for the reaction of near-term yields (2-year bond yields). If the 2-year Treasuries keep pushing higher, this will support the current USD bid. Otherwise, the Dollar rally risks fading.
2) Keep an eye on the Fedwatch tool. If the Fed rate cuts keep getting repriced hawkishly, there will be more USD strength, and equities/cryptos/risk-associated FX assets will keep facing headwinds.