- US Nonfarm Payrolls are expected to rise by 113K in October after September’s stellar gain of 254K.
- The United States Bureau of Labor Statistics will release the labor data on Friday at 12:30 GMT.
- The US Dollar’s fate and the Fed’s future interest rate cuts hinge on the US jobs data.
All eyes are on the market-moving Nonfarm Payrolls (NFP) data for October, to be released by the United States Bureau of Labor Statistics (BLS) on Friday at 12:30 GMT.
US labor market data is critical to determining the Federal Reserve’s (Fed) future interest-rate cuts and has a significant influence on the value of the US Dollar (USD) against its major rivals.
What to expect in the next Nonfarm Payrolls report?
Economists expect the Nonfarm Payrolls to show that the US economy added a meager 113,000 jobs in October, following a strong gain of 254K in September.
The Unemployment Rate (UE) is likely to remain steady at 4.1% in the same period.
Meanwhile, Average Hourly Earnings (AHE), a closely-watched measure of wage inflation, are expected to increase by 4.0% in the year through October, at the same pace seen in September.
The October jobs report is eagerly awaited for fresh hints on the Fed’s interest rate path, especially as industry experts and analysts speculate that the Fed could pause its easing cycle next month on a blockbuster Nonfarm Payrolls print.
However, downside risks to the jobs data persist, as it is likely to be distorted by the two recent hurricanes and the strike at Boeing.
Previewing the October employment situation report, TD Securities analysts said: “The November NFP report is set to be extremely noisy, but we expect a below-consensus 70k gain. High-frequency labor market data already shows some softening, and Hurricanes and the Boeing strike may subtract a further 80k from the reading.”
“We expect the UE Rate to rebound to 4.3% from 4.1% as the decline was likely overstated, but for AHE to rise 0.4% MoM amid distortions,” they added.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
How will US October Nonfarm Payrolls affect EUR/USD?
Before the Fed entered its ‘blackout period’, several policymakers supported further interest rate cuts while warranting caution on the inflation outlook, echoing the US central bank’s data-dependent approach.
At the time of writing, markets are fully pricing in a 25 basis points (bps) Fed rate cut in November, with about a 70% probability of another quarter percentage point reduction in December, according to CME Group’s FedWatch tool.
The USD has been capitalizing on US economic resilience and odds of a less aggressive Fed’s easing cycle leading into the NFP showdown on Friday.
Earlier in the week, the BLS reported that the JOLTS Job Openings declined to 7.44 million in September from 7.86 million in August. This reading came in below the market expectation of 7.99 million but failed to alter the market’s pricing for November’s rate cut move.
The Automatic Data Processing (ADP) announced on Wednesday that employment in the US private sector increased by 233,000 jobs for October, accelerating from the upwardly revised 159,000 in September and better than the market estimate of 115,000. Even though these figures aren’t always correlated with the official NFP numbers, the strong ADP jobs report eased concerns about the health of the US labor market, leaving room for an upside surprise in Friday’s payrolls data.
If the headline NFP reading surprises with a payroll growth below 100,000, it could trigger a fresh knee-jerk US Dollar selling wave. However, the Greenback is expected to resume its recent uptrend against its major rivals as the dust settles and markets digest the noisy data due to hurricanes and strikes. In such a scenario, EUR/USD traders will brace for a whipsaw within a familiar range.
Conversely, a stronger-than-expected NFP print and elevated wage inflation data would seal in a rate reduction by the Fed next week, providing extra legs to the USD uptrend while dragging EUR/USD back toward 1.0700.
In conclusion, the reaction to the US labor data may be short-lived, with the Greenback expected to continue its advance.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“Once EUR/USD stabilizes above 1.0870, where the 200-day Simple Moving Average (SMA) is located, and starts using this level as support, it could gather bullish momentum. On the upside, 1.0940 (100-day SMA) could be seen as the next hurdle before 1.1000-1.1010 (round level, 50-day SMA).”
“On the flip side, technical sellers could emerge if EUR/USD fails to clear the 1.0870 hurdle. In this scenario, 1.0800 (round level) could be seen as interim support before 1.0670 (static level from June).”
