Today is the first Friday of the month again

Today, investors' eyes will again be focused on monthly data from the American labor market. Recent months have shown that it is losing momentum, but it is still relatively strong. This week's releases showed a mixed picture.

Tuesday's JOLTS survey was a positive surprise, Wednesday's ADP was a negative surprise, while yesterday's number of applications for unemployment benefits was at a low level. EUR/USD, after falling below the level of 1,05, has been making an upward correction in recent days.

Still high demand for work

Tuesday's JOLTS survey showed more than 9,6 million job openings in the U.S. labor market. The result was expected to be much lower. This figure shows that the demand for labor is still high. The private ADP report - presenting the change in employment in the private sector - was disappointing with a result of 89, but as we know, this is not an indicator that is an ideal forecast for the government NFP report. In turn, the latest weekly data did not raise any alarm signals.

Economists surveyed by Bloomberg expect that employment change will amount to 170 thousand. – less than a month earlier (187 thousand). At the same time, the consensus indicates a decline in the unemployment rate from 3,8 percent. up to 3,7 percent The dynamics of the average hourly wage is expected to be 4,3%. on an annual basis (as before) and 0,3 percent month-to-month (this means an increase from 0,2%). Going into even greater detail, the economic activity rate is expected to remain unchanged and amount to 62,8%.. It shows what percentage of the population is working or actively looking for work. This indicator has been gradually increasing since the pandemic collapse and is slowly reaching the levels observed in the period preceding the lockdown.

The labor market is important for the Fed

To summarize, the US labor market is showing increasingly clear signs of the Fed's desired cooling. Employment within three months to August increased by an average of only 150. jobs, which is a much slower pace than the increase of 400 thousand. per month in 2022. Moreover, the number of job vacancies has decreased significantly (despite the recent rebound). Currently, the demand for labor is decreasing, which is slowly translating into a decline (although still slow) in the dynamics of wage growth.

Yesterday's comments once again confirmed that developments in the labor market play an important role for the Fed. Mary Daly of San Francisco said that interest rates may remain unchanged, if the labor market and inflation continue to cool. If this doesn't happen, Federal Reserve may respond and further raise the key interest rate. Therefore, it is understandable why the market is focused on today's release. I assume that after the recent dynamic strengthening of the USD, the currency market may react more sensitively to a negative rather than a positive surprise.

Source: Łukasz Zembik, OANDA TMS Brokers