Will the Non Farm Payrolls report weaken the dollar?

Last month, the NFP report brought a big surprise. The increase in jobs turned out to be extremely high. The good result was probably a one-off phenomenon and is unlikely to be repeated in the coming months. For that data EUR / USD exchange rate reacted with a temporary drop to 1,0485, followed by an increase to a level close to 1,06. Since then, the quotations have not fallen below the set minimum and have moved in wide consolidation between 1,05 and 1,07.

Today the forecasts indicate that October's numbers will be worse than September's.

ADP report below expectations

The increase in the number of new jobs in October was probably not as spectacular as the month before. According to a survey conducted by Bloomberg it is expected to amount to 180 thousand. Forecasts indicate that the unemployment rate will remain unchanged (3,8%). Also the economic activity rate is expected to remain unchanged and amount to 62,8%.. In turn, the increase in average hourly wages will probably amount to 4%. on a year-to-year basis. This week, other publications provided some clues about the labor market.

The JOLTS survey (presenting labor demand and employee turnover) "came out" better than forecast, the result (9553) was slightly worse than the previous value. ADP report indicated 113 thousand new jobs in the private sector and was better than the result from a month ago (which was surprisingly weak). However, the publication turned out to be below market expectations. High-frequency data, i.e. weekly unemployment benefit claims, turned out to be worse. The beginnings of a trend change are visible here, but it will probably be a long-term process.

Is the job market cooling down?

If today's publications turn out to be close to forecasts, it will mean that the labor market is cooling down, but the pace of this process is very slow. Then the Fed will still have arguments for leaving the door open to further rate increases. Powell and his colleagues however, they are becoming more and more cautious, even though so far solid data has been coming from the US economy. As long as inflation remains on track towards the inflation target, the Fed believes there is no urgent need for stronger monetary tightening.

Despite this improved data recently (with a few exceptions), the dollar is having trouble strengthening. It is true that, according to CFTC reports, "long" positions in dollars currently have the advantage, but the net result remains stable and no greater growth dynamics is visible.

The probability of a positive surprise in the data (high NFP reading) is lower than a negative surprise, so the dollar may have problems with strengthening today. Please remember that until the December meeting FOMC We will get a few more important reports, but the one from today may bring us closer to what the Fed may do in December.

Source: Łukasz Zembik, OANDA TMS Brokers