September Nonfarm Payrolls Due Friday, All Eyes on Fed Rate Path

On Friday at 12:30 GMT, the US Bureau of Labor Statistics (BLS) will publish September’s Nonfarm Payrolls (NFP) figures.

The employment report’s underlying numbers may shape market views on the Federal Reserve’s policy direction and affect the US Dollar’s value, as investors remain undecided on a possible October rate increase.

What To Expect From the Nonfarm Payrolls Report?

September NFP is projected to come in at 90K, after August’s strong 162K. The unemployment rate is expected to stay at 4.1%, and Average Hourly Earnings (AHE) are forecast to remain unchanged at 0.3% month-on-month.

Following the solid August jobs figures, the Fed raised its policy rate by 25 bps at its September meeting, as widely anticipated. In its statement, the central bank said job gains have matched workforce growth and the unemployment rate has barely moved.

Fed Chair Kevin Warsh echoed that view, noting the jobless rate stayed low and job openings and hours rose, adding that “the labor side of the Fed’s remit is in good shape.”

TD Securities forecasts September NFP moderated to 50k and the unemployment rate rose to 4.2%, after a strong August. The bank says the slowdown is mainly due to “a reversal in seasonal factors,” and that “private payrolls at 50k will likely be led by healthcare and leisure & hospitality,” while “flat government will be weighed down by a reversal in local hiring.”

TD also expects “AHE was likely subdued at 0.1% m/m (3.0% y/y),” with the unemployment rate rising “along with participation.”

Overall, TD says it would “look through dovishness in the report due to seasonal factors and rising participation,” arguing that the softer headline numbers may be less significant for the policy outlook.

How Will the US August Nonfarm Payrolls Affect EUR/USD?

After the Fed’s September meeting, hawkish remarks from officials and positive US economic data boosted expectations for another rate hike in October and underpinned the US dollar.

The S&P Global Manufacturing and Services PMIs rose to 57 and 58.7, respectively, indicating solid expansion in private-sector activity.

Philadelphia Fed President Anna Paulson said interest rates may need to rise again, noting that while the September rate increase enhanced the inflation battle, underlying inflation remains “stubbornly high.”

Chicago Fed President Austan Goolsbee cautioned that potential productivity gains from artificial intelligence create a “high danger of overheating now.”

He also underscored large fiscal deficits, persistent overshoot of the inflation goal, and the need to reconsider looking through supply shocks, signaling a tilt toward tighter policy.

The CME FedWatch Tool showed the probability of an October rate hike climbing toward 70% earlier in the week, then falling after the US Bureau of Economic Analysis reported that the core inflation data came in softer than expected.

The Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge, increased 3% in August, the same as July and sharply below the 3.3% that markets had anticipated.

In the current climate, an NFP reading above 100K could rekindle rate hike expectations for the next meeting and push the US dollar higher, sending EUR/USD lower into the weekend. On the other hand, a negative surprise below 50K could weigh on the dollar immediately.

A reading between 50K and 100K might have minimal effect on Fed rate expectations. OCBC analysts note that “recent claims data have continued to trend lower, suggesting labour market conditions remain firm,” and warn that “the risk of an upside payrolls surprise appears to be increasing.”

They say a “stronger-than-expected employment report would likely reinforce expectations of further Fed tightening, keep Treasury yields elevated and provide additional support for the USD,” highlighting the significance of this week’s jobs data for the dollar’s short-term path.

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short technical view on EUR/USD:

“EUR/USD’s near-term technical outlook highlights a bearish stance as it trades well below the 100-day and 200-day Simple Moving Averages (SMA) and the descending trend line. However, the Relative Strength Index (RSI) indicator on the daily chart sits below 20, pointing to oversold conditions. On the downside, 1.1145 (static level) aligns as the next key support level ahead of 1.1000 (static level, round level). Looking north, the first important resistance level could be spotted at 1.1460 (static level, Bollinger Band mid-point) before 1.1520 (100-day SMA) and 1.1615 (200-day SMA, descending trend line).”