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Hopes of a Fed cut as early as July faded as the set of labour market data proved too strong. Against consensus expectations of a 106k print, NFP came in at 147k. Note that this headline figure is particularly eye catching given that ADP employment was negative for the month. Interestingly, it was the government that provided the bulk of the jobs. Private sector payrolls only came in 74k. We would not read too much into the surprise decline in unemployment rate to 4.1%, noting that this was driven by a drop in participation rate. The frontend of the UST curve bore the brunt of the selloff as July's odds fell to zero and market participants wavered on bets for September. Persistently strong NFP figures that have consistently beat consensus over the past few months is proving to be a conundrum. If the labour market refuses to weaken despite tariff-induced stresses, inflation will be the determining factor on Fed cuts.
There are two outcomes that the market will be toying with. First, if inflation stays benign, there is still a reasonable case for reducing the FFR by citing high real rates. Second, if tariff-induced inflation finally shows up, the Fed might get conflicted in September. Against this backdrop where the strength of the US economy (boosted by the One Big Beautiful Bill, scheduled to be signed by Trump today) may keep USD rates elevated and hold back further USD weakness, some upward pressures may start materialising on short term SORA OISs and HIBOR IRSs. 
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