- US nonfarm employment expected to fall sharply
It posted strong gains on Thursday. In the European session, GBP/USD is trading at 1.2222, up 0.16%.
US nonfarm payrolls expected to decline
The week concludes with the US nonfarm employment report. This key event has been overshadowed by CPI releases in the era of high inflation, but remains a critical indicator of the strength of the US economy. In September, nonfarm payrolls exceeded expectations with an increase of 336,000. Markets are expecting a much softer reading in October, with a market consensus of 170,000.
The ADP employment change report, which is not considered a reliable indicator of nonfarm payrolls but is still closely watched, posted a weak gain of 113,000 in October, well below the market consensus of 150,000 and after the September reading of 89,000. Will Nonfarm Payrolls follow the same path or will we see another major release?
It has faced some headwinds since the Federal Reserve’s decision to hold interest rates on hold for the second time in a row. Fed Chair Powell tried to sound hawkish and reiterated that rate hikes remain on the table. However, markets do not expect further rate hikes, and if current non-farm payrolls are weaker than expected, it would likely signal the end of the current tightening cycle. In contrast, a strong nonfarm payrolls report would support the Federal Reserve’s stance that rate hikes remain on the table and would likely translate into strong gains for the US dollar.
The Federal Reserve will also keep an eye on wage growth, a driver of inflation. Salaries increased 0.2% month-on-month in September and the market estimate for October stands at 0.3%. On an annualized basis, wage growth is expected to slow to 4.0% in October, down from 4.2% in September.
The Bank of England voted to keep interest rates at 5.25% at Thursday’s meeting, although the 6-3 vote in the MPC indicates there are deep divisions over rate policy. Governor Bailey said after the meeting that higher interest rates had reduced inflation, but that he was “too early to think about rate cuts.” Inflation has been falling in the UK, but the current level of 6.7% is well above the Bank of England’s target of 2% and is the highest in the G-7 club.
- GBP/USD is testing the resistance at 1.2175. Above, there is resistance at 1.2251.
- There is support at 1.2068 and 1.2032