- The US JOLTS data will be watched closely by investors ahead of the release of the October employment report on Friday.
- Job openings are forecast to retreat slightly below 8 million in September.
- The state of the labor market is a key factor for Fed officials when setting policy.
The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday by the US Bureau of Labor Statistics (BLS). The publication will provide data about the change in the number of job openings in September, alongside the number of layoffs and quits.
JOLTS data is scrutinized by market participants and Federal Reserve (Fed) policymakers because it can provide valuable insights regarding the supply-demand dynamics in the labor market, a key factor impacting salaries and inflation. Job openings have been declining steadily since coming in above 12 million in March 2022, pointing to a steady cooldown in labor market conditions. In August, however, the downward trend halted as the number of job openings climbed above 8 million from 7.7 million in August.
What to expect in the next JOLTS report?
Markets expect job openings to come in at 7.99 million on the last business day of September. Federal Reserve (Fed) policymakers have made it clear after the July policy meeting that they are shifting their focus to the labor market, given the encouraging signs of inflation retreating toward the central bank’s target.
It is important to note that, while the JOLTS data refers to the end of September, the official Employment report measures data for October.
The upbeat employment report for September, which showed that Nonfarm Payrolls (NFP) rose by 254,000, caused market participants to refrain from pricing in another large Fed rate cut at the policy meeting to be held on November 7. Assessing the recent employment data, Kansas City Fed President Jeffrey Schmid argued that the labor market was normalizing after a period of record over-employment and untenable low unemployment rates, rather than an outright deterioration.
The CME FedWatch Tool currently shows that markets are nearly fully pricing in a 25 basis points (bps) rate reduction at the next policy meeting. Meanwhile, the probability of one more 25 bps rate cut in December currently stands at around 72%, against a 27% chance of a policy hold.
In case there is a positive surprise in the job openings data, with a reading of at or above 8.5 million, the immediate reaction could boost the US Dollar (USD) by causing investors to reassess the probability of a December rate cut. On the other hand, a disappointing print at or below 7.5 million could hurt the USD.
“Over the month, hires changed little at 5.3 million. Total separations changed little at 5.0 million,” the BLS noted in its August JOLTS report. “Within separations, quits (3.1 million) continued to trend down and layoffs and discharges (1.6 million) changed little.”
When will the JOLTS report be released and how could it affect EUR/USD?
Job openings’ numbers will be published on Tuesday at 14:00 GMT. Eren Sengezer, European Session Lead Analyst at FXStreet, shares his view on the potential impact of JOLTS data on EUR/USD:
“Unless there is a significant divergence between the market expectation and the actual print, the market reaction to JOLTS data is likely to remain short-lived, with investors refraining from taking large positions ahead of the third-quarter Gross Domestic Product (GDP) data and the October employment report, which will be published on Thursday and Friday, respectively.”
“EUR/USD’s near-term technical outlook suggests that the bearish bias remains intact. The Relative Strength Index (RSI) indicator on the daily chart stays below 40 and the 20-day Simple Moving Average (SMA) continues to move away from the 100-day SMA after completing a bearish cross late last week.”
“On the upside, 1.0870 (Fibonacci 23.6% retracement level of October downtrend, 200-day SMA) aligns as key resistance. If EUR/USD rises above this level and starts using it as support, technical buyers could take action. In this scenario, 1.0930 (Fibonacci 38.2% retracement, 100-day SMA) could be seen as the next bullish target before 1.1000 (round level). Looking south, first support could be spotted at 1.0770 (end-point of the downtrend) before 1.0700 (round level) and 1.0620 (static level from April).”
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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