What will happen to the US dollar exchange rate as the September non-farm payroll data approaches?

The September US Employment Report is about to be released, with economists expecting non-farm payrolls to increase by 50,000. The U.S. Bureau of Labor Statistics (BLS) will release the delayed September non-farm payroll (NFP) data at 13:30 Beijing time on Thursday, a report considered a key reference for the Federal Reserve’s (Fed) December monetary policy decision.

How does the market interpret employment data?

Compared to August’s increase of only 22,000, September’s expected rise will jump to 50,000, reflecting signs of a modest recovery in the labor market. Meanwhile, the unemployment rate is expected to remain steady at 4.3%, with average hourly earnings forecasted to grow 3.7% year-over-year, unchanged from the previous month.

TD Securities analysts offer a more optimistic forecast: employment growth in September could rebound to 100,000, with private non-farm employment increasing by 125,000, while government employment may decrease by 25,000. The unemployment rate will stay at 4.3%, and month-over-month hourly earnings may fall back to 0.2% (3.6% YoY).

What signals do the latest economic data send?

Mixed signals about the strength of the labor market. Data from ADP, an automated data processing company, released on November 5th, showed that private sector employment increased by 42,000 in October, surpassing the expected 25,000. However, data from HR firm Challenger, Gray & Christmas revealed a different concern—the number of announced layoffs surged by 183.1% month-over-month, the worst October in over 20 years.

The Institute for Supply Management (ISM) released its October Manufacturing PMI at 48.7, below the forecast of 49.5, indicating manufacturing contraction pressure. In contrast, the ISM Non-Manufacturing Index unexpectedly rose to 52.4, driven by a significant increase in new orders, showing the service sector remains resilient. These data suggest a divided labor market.

How are expectations for Fed rate cuts evolving?

Market expectations for a Fed rate cut in December have experienced rollercoaster fluctuations. After the release of the October FOMC minutes, policymakers warned that lowering borrowing costs could weaken efforts to combat inflation. According to the CME FedWatch Tool, the probability of a rate cut in December has fallen from 65% a week ago to 33%, after once approaching 50%.

Fed officials are adopting a cautious stance, balancing inflation risks against a cooling labor market. Woori Bank economists note that although September’s non-farm data was somewhat lagging, it might be the last comprehensive employment report available before the December Fed meeting, making it a market indicator for policy shifts.

EUR/USD exchange rate faces a critical choice

The US dollar has recently rebounded against major currencies, with EUR/USD falling back below 1.1600. Technically, the pair closed below the 21-day simple moving average of 1.1574 on Wednesday, and the 14-day Relative Strength Index (RSI) on the daily chart remains below the midline, increasing the likelihood of further decline. Support is near the November 5th low of 1.1469; a break below could threaten the 200-day moving average at 1.1395.

Bullish scenario: If September non-farm payrolls are below 50,000 and the unemployment rate unexpectedly rises, it would confirm a softening labor market, boosting market bets on a Fed rate cut in December. The dollar could weaken, and EUR/USD could rebound to 1.1700. The key resistance level for buyers is around 1.1350.

Bearish scenario: If non-farm payrolls show strong growth and the unemployment rate remains or falls below 4.3%, a rebound needs confirmation above the 21-day moving average of 1.1574, with the next target near 1.1650 (where the 50-day and 100-day moving averages converge), and further gains could reach 1.1700. Conversely, strong employment data would pressure rate cut expectations, supporting a stronger dollar, and EUR/USD could extend its decline below 1.1400.

The release of the September non-farm report will be a decisive moment, and the market is ready to see the showdown between the US dollar and the euro.