Implications For Fed Policy
The lower-than-expected wage growth at 3.5% suggests the labor market is cooling faster than anticipated. This reduces pressure on the Federal Reserve to maintain its restrictive stance. We see this as a green light for risk assets as it lowers the odds of further rate hikes. Futures markets are already reacting, with the probability of a June 2026 rate cut now priced above 70%, up from just 50% last week according to CME Group data. This follows the February 2026 CPI data which showed core inflation stubbornly at 3.1%, making this jobs report pivotal. We should be looking at options on SOFR futures to position for yields to fall further. This clearer path toward monetary easing should suppress market volatility. The VIX index, currently sitting near 14, is likely to drift lower as rate uncertainty diminishes. This is a significant change from the elevated volatility we saw throughout much of 2025 when the timing of the Fed’s pivot was highly debated. Growth-oriented sectors, particularly technology, stand to benefit most from the prospect of lower borrowing costs. The Nasdaq 100 has historically outperformed when long-term bond yields fall, as we observed during the market pivot in the final quarter of 2023. We believe call options on technology-focused ETFs are now a more attractive trade for the coming quarter.Dollar And FX Positioning
A more dovish Fed outlook will likely put downward pressure on the US dollar. The Dollar Index (DXY) has already fallen 0.5% today to 103.50 on the news. We expect this trend to continue, making put options on the DXY or long positions in EUR/USD favorable trades. Create your live VT Markets account and start trading now.
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