Deutsche Bank strategists note that easing inflation fears and softer US data have led markets to scale back expectations for additional Federal Reserve tightening in 2026. The Dollar Index (DXY) is slightly lower, with jobless claims at a three‑month high and Treasury yields falling. They expect a softer May payrolls print than consensus, while still positive.

Softer data cools Fed expectations

"With easing fears around inflation, markets dialled back the chance of a rate hike from the Federal Reserve this year. Indeed, the probability of a hike by December was down to 68% by the close, having been at 81% the previous day."

"Moreover, those dovish expectations got further support from some weaker US data, with the weekly initial jobless claims rising to their highest since early February."

"They hit 225k in the week ending May 30 (vs. 215k expected), and even though the Memorial Day holiday could have created volatility, the 4-week moving average also reached a 3-month high of 214.75k."

"Looking forward, US data will stay in the spotlight today, as we’ll get the May jobs report at 13:30 London time. This will be an important one for the Fed, as the strong labour market data of recent weeks has fuelled the speculation about a potential rate hike."

"In terms of today’s report, our US economists expect payrolls to come in at +50k (consensus +88k), with the unemployment rate remaining at 4.3%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)