The US economy showed a notable slowdown in job creation at the start of the summer, according to a report released Thursday by the Bureau of Labor Statistics, a development that strengthened investor expectations that the Federal Reserve will not need to raise interest rates in the near term.

Nonfarm payrolls increased by 57,000 jobs in June on a seasonally adjusted basis, following a downwardly revised gain of 129,000 in May. The result came in below the Dow Jones consensus forecast of 115,000 jobs.

Meanwhile, the unemployment rate fell to 4.2%, compared with 4.1% a year earlier.

Labor force participation declines as prior data are revised lower

The decline in the unemployment rate was driven largely by a drop in labor force participation, which fell by 0.3 percentage points to 61.5%, its lowest level since March 2021.

The household survey also showed a sharp deterioration in employment, with the number of employed people falling by 507,000 during the month. The broader measure of unemployment, which includes discouraged workers and those working part-time for economic reasons, declined by 0.2 percentage points to 7.9%.

Previous months’ data were revised lower as well. May payroll growth was cut by 43,000 jobs after originally coming in well above economists’ expectations, while April payrolls were revised down by 31,000 to 148,000 jobs, indicating that labor market growth had been considerably weaker than previously believed.

Average hourly earnings rose 0.3% in June and were up 3.5% from a year earlier, in line with market expectations.

Professional and business services led job gains, adding 36,000 positions. Social assistance employment increased by 25,000 jobs, while healthcare added 22,000 jobs, although that growth came at a slower pace than is typical for the sector. Government employment also increased by 8,000 jobs.

By contrast, the leisure and hospitality sector lost 61,000 jobs, which the Bureau of Labor Statistics attributed to weaker-than-usual seasonal hiring. There had been expectations that the World Cup would provide a boost to employment, with Goldman Sachs estimating the event could add around 40,000 jobs.

Most other sectors saw little change in employment levels.

Markets scale back rate hike expectations as the Fed faces a more complex labor picture

US stock futures rose following the report as traders reduced expectations for a possible interest-rate increase as early as September.

At the same time, US Treasury yields declined, with the policy-sensitive two-year yield falling 3.5 basis points to 4.13%.

Seema Shah, Chief Global Strategist at Principal Asset Management, said: “The slowdown in job growth undermines the narrative that had been developing in recent months that the labor market was regaining strength. At the same time, it reinforces the view that the Federal Reserve is under little pressure to tighten monetary policy further.”

The report comes at a time when Federal Reserve officials have expressed mixed views on the US economy. Policymakers have remained relatively optimistic about growth while continuing to worry about inflation, after earlier concerns over labor market weakness had eased. However, Thursday’s weak employment data could prompt policymakers to reassess labor market conditions.

Federal Reserve Chairman Kevin Warsh described the labor market as “stable” during a media appearance on Wednesday, while reiterating the importance of returning inflation to the central bank’s 2% target.

Inflation has remained above that level for nearly five years, with the latest increase driven in part by the war with Iran and the ongoing effects of tariffs.

“These numbers are fine for the Federal Reserve,” said Thomas Simons, Chief Economist at Jefferies, in a research note. “Job growth remains sufficient to keep the unemployment rate stable, while wage growth remains solid without accelerating. There is no urgent need to take immediate action on interest rates, and the slower pace of payroll growth suggests that a rate hike this year has become highly unlikely.”

Markets expect the Federal Reserve to leave interest rates unchanged throughout the summer. Following the jobs report, traders largely ruled out a rate increase at the September meeting, although futures markets still imply some probability of a hike in October, according to the CME FedWatch Tool.

For his part, Kevin Warsh has avoided providing forward guidance on the future path of interest rates, repeatedly emphasizing since taking office that he is not committed to any predetermined policy course.

In separate labor-market data released Thursday, initial jobless claims fell to 215,000 on a seasonally adjusted basis in the week ended June 27, down by 1,000 from the previous week and below market expectations of 220,000.

Bitcoin extended its recovery on Thursday, climbing above the $61,000 level after falling to a 21-month low during the previous session.

The rebound was supported by reports of positive progress in indirect talks between the United States and Iran in Doha, boosting investor confidence and supporting a recovery in risk assets, despite ongoing selling pressure from institutional investors as US spot Bitcoin ETFs recorded another day of net outflows.

Progress in US-Iran talks boosts risk appetite

Improving geopolitical sentiment helped support investor appetite for risk, providing limited support for Bitcoin.

Qatar’s Foreign Ministry said the United States and Iran made “positive progress” during indirect talks in Doha, with discussions advancing on issues related to the June ceasefire memorandum.

A ministry spokesperson added that negotiators are “building on the outcomes” of the recent summit held in Switzerland, raising hopes for a more durable peace agreement.

US President Donald Trump echoed those remarks, saying the talks had made progress regarding potential restrictions on Iran’s nuclear program and that the country’s “denuclearization process is going well.”

US Vice President JD Vance, however, said the nuclear file would be addressed at a later stage.

Qatar’s Foreign Ministry also said the next round of talks will take place after the funeral ceremonies of Iran’s late Supreme Leader Ayatollah Ali Khamenei, scheduled for July 9.

Even so, uncertainty surrounding the Strait of Hormuz remains. Shipping traffic through the waterway has increased significantly, supporting investor optimism, but remains well below the roughly 160 vessels that passed through the strait before the conflict began.

Analysts believe investors should continue monitoring developments in the Middle East closely, as the fragile situation remains a risk to market sentiment, although recent diplomatic progress has provided short-term support for risk assets, particularly Bitcoin.

Institutional selling pressure persists

Despite the recovery in prices, institutional demand remains weak.

Data from SoSoValue showed that US spot Bitcoin ETFs recorded net outflows of $294.62 million on Wednesday, marking the tenth consecutive day of withdrawals.

Analysts believe that if outflows continue through the remainder of the week, Bitcoin could face additional downside pressure.

US jobs report could increase Bitcoin volatility

The US Bureau of Labor Statistics is scheduled to release June nonfarm payrolls data on Thursday at 12:30 GMT.

With markets pricing in the possibility of a more hawkish Federal Reserve under its new chairman Kevin Warsh, the employment report could influence expectations regarding the timing of future rate hikes.

ADP reported on Wednesday that US private-sector employment increased by 98,000 jobs in June, down from 122,000 in May and below market expectations of 113,000.

Meanwhile, data from the Institute for Supply Management showed the manufacturing PMI fell to 53.3 in June from 54.0 in May.

The prices-paid index declined to 73.0 from 82.1, signaling easing inflation pressures, while the employment index improved to 49.7 from 48.6.

Monetary policy expectations remain a key headwind for risk assets.

According to the CME FedWatch Tool, traders are currently pricing in roughly a 63% probability of a Federal Reserve rate hike in September, rising to around 84% by year-end.

Those expectations have been reinforced by comments from Federal Reserve Chairman Kevin Warsh, who reiterated his commitment to the central bank’s 2% inflation target and signaled that investors expecting a dovish policy shift are likely to be disappointed, despite calls from President Donald Trump for lower interest rates.

Several Federal Reserve officials have also indicated that keeping rates elevated may be necessary to return inflation to target, a stance that could support the US dollar and Treasury yields while limiting Bitcoin’s upside potential.

Oil prices fell more than 1% on Thursday, extending losses for a third consecutive session as concerns over supply disruptions eased following Qatar’s announcement of progress in discussions between the United States and Iran regarding the Strait of Hormuz.

Brent crude futures fell $1.06, or 1.48%, to $70.51 a barrel by 10:00 GMT.

US West Texas Intermediate crude declined by the same amount, or 1.55%, to $67.52 a barrel, with both benchmarks trading at their lowest levels since February 27.

Qatar’s Foreign Ministry said the talks achieved “positive progress” on issues related to the memorandum of understanding that ended the war in June, although it noted there were no signs of meaningful progress toward a permanent peace agreement.

The ministry added that the next round of discussions between Iranian and US negotiators will take place after the funeral ceremonies for Iran’s late Supreme Leader Ayatollah Ali Khamenei, scheduled after July 9.

Steady supply flows weigh on prices

Bjarne Schieldrop, Chief Commodities Analyst at SEB, said: “Oil continues to flow through the Strait of Hormuz, while strategic reserves are also being released. At the same time, Chinese oil purchases and global demand have yet to fully recover.”

He added: “This could be a dynamic pattern in which prices move sharply lower before rebounding later on.”

Meanwhile, Iran warned on Thursday that any US intervention in the Strait of Hormuz would be met with a “decisive and swift response,” adding that the continued presence of American air assets over the waterway threatens regional security, according to state media reports.

US inventories fall as price forecasts are cut

Data released Wednesday by the US Energy Information Administration showed US crude inventories fell last week to their lowest level since 2018 as refinery demand strengthened, while gasoline inventories also declined.

Against the backdrop of rising oil flows through the Strait of Hormuz, UBS lowered its Brent crude price forecasts.

The bank cut its third-quarter Brent forecast by $25 a barrel to $80 and reduced its fourth-quarter 2026 forecast by $10 to $80 a barrel. It also lowered its 2027 forecast by $10 to $75 a barrel.

Analysts at HSBC said the market should be able to absorb the return of Middle Eastern supplies through a gradual rebuilding of inventories, alongside the conclusion of the International Energy Agency’s strategic reserve release program during July.

The bank said in a research note: “As the temporary oversupply in the near term fades, Brent could return to $80 a barrel or higher.”

Developments in Nigeria and Russia

Separately, the International Energy Agency announced that Nigeria has joined the organization as an associate member, making Africa’s largest oil producer part of a network representing more than 80% of global energy demand.

In Russia, Ukraine’s General Staff said Ukrainian forces targeted the Lukoil–Nizhegorodnefteorgsintez refinery in Russia’s Nizhny Novgorod region.

The US dollar weakened on Thursday ahead of the closely watched US employment report, which could either reinforce or challenge market expectations for additional Federal Reserve interest rate hikes this year. Meanwhile, oil prices continued to decline, while semiconductor stocks remained under pressure after their strong performance during the previous quarter.

Money markets are currently pricing in one Federal Reserve rate hike by October, with roughly a 40% chance of a second increase before the end of the year.

If Thursday’s US jobs report — released a day earlier than usual because of Friday’s Independence Day holiday — comes in stronger than expected, it could reinforce those expectations and push both US Treasury yields and the dollar higher.

A weaker-than-expected report, however, could force investors to reassess the outlook for US interest rates.

Economists surveyed by Reuters expect the US economy to have added 110,000 jobs in June, although forecasts vary widely between 25,000 and 200,000 jobs, increasing the potential for a significant surprise.

The unemployment rate is expected to remain unchanged at 4.3%.

Yen jumps amid intervention speculation

The US employment report is attracting as much attention in Tokyo as it is in Washington, with the yen trading near its weakest level in almost 40 years against the dollar and investors increasingly focused on the possibility of intervention by Japanese authorities.

In a move that highlighted those concerns, the yen suddenly surged during early European trading on Thursday, sending the dollar down 0.9% to ¥161.15.

The exact cause of the move was not immediately clear, although analysts noted that it was less dramatic than previous market reactions linked to official intervention.

Takeshi Ishida, market strategist at Kansai Mirai Bank, said: “If this move was intervention-related, it was relatively limited. The Japanese government may have acted ahead of potentially strong US employment data. I had expected intervention if the yen weakened toward the ¥163–¥164 range against the dollar.”

He added: “Intervention would be more effective if the US jobs report comes in weak, because it would become more difficult for the Federal Reserve to justify raising interest rates.”

Dollar retreats against major currencies

The dollar also weakened against several major currencies as traders adjusted positions ahead of the employment data release.

The euro rose 0.3% to $1.1417, while sterling gained 0.6% to $1.3353.

The yen also advanced against both the euro and the British pound.

In the bond market, the yield on the benchmark 10-year US Treasury note rose two basis points to 4.99%.