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    • October NFP data crucial to Fed’s November rate decision
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    October NFP data crucial to Fed’s November rate decision

    Pabio Posted on

    • U.S. nonfarm payrolls are expected to increase by 113,000 in October after September’s dramatic gain of 254,000.
    • The US Bureau of Labor Statistics will release employment data on Friday at 12:30 GMT.
    • The fate of the US dollar and future Fed interest rate cuts hinge on US jobs data.

    All eyes are on the nonfarm payrolls (NFP) data for October, which will be released by the US Bureau of Labor Statistics (BLS) on Friday at 12:30 GMT.

    U.S. labor market data is key to determining future Federal Reserve (Fed) interest rate reductions and has a significant influence on the value of the labor market. US Dollar (USD) against its main rivals.

    What to expect in the next nonfarm payrolls report?

    Economists expect nonfarm payrolls figures to show the U.S. economy added just 113,000 jobs in October, following a strong gain of 254,000 in September.

    The unemployment rate (EU) should remain stable at 4.1% over the same period.

    At the same time, the average hourly wage (AHE), a closely watched measure of wage inflation, is expected to rise 4.0% in the year through October, the same pace as in September.

    The October jobs report is eagerly awaited for further guidance on the Fed’s interest rate path, especially as industry experts and analysts speculate that the Fed could pause its interest rate cycle. easing next month on the basis of a successful report on non-agricultural employment.

    However, there are downside risks to the employment data as it may be distorted by the two recent hurricanes and the Boeing strike.

    Introducing the October jobs report, TD Securities analysts said: “November’s NFP report is shaping up to be extremely noisy, but we expect a gain of $70,000 below consensus.” . High-frequency labor market data already shows some slowdown, and hurricanes and the Boeing strike could subtract another 80,000 from the figure.

    “We expect the EU rate to rebound to 4.3% from 4.1% as the decline was likely overestimated, but for the AHE to increase by 0.4% month-on-month against a backdrop of distortions,” they added.

    Employment FAQs

    Labor market conditions are a key element in assessing the health of an economy and therefore a key factor in the valuation of a currency. High employment or low unemployment has positive implications for consumer spending and therefore economic growth, thereby strengthening the value of the local currency. Furthermore, a very tight labor market – a situation in which there is a shortage of workers to fill vacant positions – can also have implications for inflation levels and therefore monetary policy, as a Low labor supply and high demand lead to higher wages.

    The rate at which wages rise in an economy is critical to policymakers. Strong wage growth means households have more money to spend, which generally leads to higher prices of consumer goods. Unlike more volatile sources of inflation such as energy prices, wage growth is seen as a key driver of underlying and persistent inflation, as wage increases are unlikely to be canceled. Central banks around the world pay close attention to wage growth data when deciding monetary policy.

    The weight each central bank gives to labor market conditions depends on its objectives. Some central banks explicitly have labor market mandates beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Nonetheless, regardless of their mandates, labor market conditions are an important factor for policymakers, given their importance as an indicator of the health of the economy and their direct relationship to inflation.

    How will US non-farm wages impact October on EUR/USD?

    Before the Fed entered its “blackout period,” several policymakers supported further interest rate cuts while justifying caution about the inflation outlook, echoing the data-dependent approach of the American central bank.

    At the time of writing, markets are fully pricing in a 25 basis point (bps) Fed rate cut in November, with about a 70% chance of another quarter point cut. percentage in December, according to the CME group’s FedWatch tool.

    The dollar capitalized on US economic resilience and the chances of a less aggressive Fed easing cycle leading into Friday’s NFP showdown.

    Earlier in the week, the BLS reported that JOLTS job postings fell to 7.44 million in September from 7.86 million in August. This came in below market expectations of 7.99 million, but did not change market pricing regarding the November rate cut.

    The Automatic Data Processing Agency (ADP) reported Wednesday that U.S. private sector employment increased by 233,000 for October, an acceleration from September’s upwardly revised 159,000 and more than the market estimate of 115,000. Although these figures do not always correspond to official figures NFP numbersADP’s strong jobs report eased concerns about the health of the U.S. labor market, giving way to an upside surprise in Friday’s jobs data.

    If the NFP figure surprises with payroll growth below 100,000, it could trigger a new wave of knee-jerk selling in the US dollar. However, the greenback is expected to resume its recent upward trend against its major rivals as the dust settles and markets digest noisy data from hurricanes and strikes. In such a scenario, EUR/USD traders will prepare for a shock into a familiar range.

    Conversely, a stronger-than-expected NFP result and strong wage inflation data would seal a rate cut by the Fed next week, providing an additional boost to the dollar’s uptrend while bringing back l ‘EUR/USD around 1.0700.

    In conclusion, the reaction to the US employment data could be short-lived, with the greenback expected to continue its advance.

    Eren Sengezer, lead analyst for the European session at FXStreetprovides a brief technical overview outlook for EUR/USD:
    “Once EUR/USD stabilizes above 1.0870, where the 200-day simple moving average (SMA) lies, and begins to use this level as support, it could gain upside 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 other hand, technical sellers could emerge if EUR/USD fails to overcome the obstacle of 1.0870. In this scenario, 1.0800 (round level) could be considered as an intermediate support before 1.0670 (June static level).

    Fed FAQs

    Monetary policy in the United States is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and to promote full employment. Its main tool for achieving these goals is to adjust interest rates. When prices rise too quickly and inflation rises above the 2% target, the Fed raises interest rates, raising borrowing costs across the economy. This results in a stronger United States dollar (USD) because it makes the United States a more attractive place for international investors to put their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which weighs on the greenback.

    The Federal Reserve (Fed) holds eight policy meetings per year, during which the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC brings together twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional reserve bank presidents, who serve one-year terms role. .

    In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed dramatically increases the flow of credit into a frozen financial system. This is a non-standard policy measure used during crises or when inflation is extremely low. This was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy investment-grade bonds from financial institutions. QE generally weakens the US dollar.

    Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest the principal of maturing bonds it holds to purchase new bonds. It is generally positive for the value of the US dollar.

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