Nonfarm Payrolls set to grow moderately in September as markets mull bets of another big Fed rate cut

• US Nonfarm Payrolls are set to increase by 140K in September, similar to August’s gain of 142K.
• The United States labor data will be published by the Bureau of Labor Statistics on Friday at 12:30 GMT.
• The US jobs data could have a significant impact on the direction of the Fed interest rates and thus the US Dollar’s valuation.

The high-impact Nonfarm Payrolls (NFP) data from the United States (US) for September will be published by the Bureau of Labor Statistics (BLS) on Friday at 12:30 GMT.

The US labor market data is expected to significantly impact the US Dollar (USD) performance against its major rivals, as markets speculate about the size of the next Federal Reserve (Fed) interest rate cut in November.

What to expect in the next Nonfarm Payrolls report?

Economists expect the Nonfarm Payrolls report to show that the US economy added 140,000 jobs in September, following a job gain of 142,000 reported in August.

The Unemployment Rate is expected to stay unchanged at 4.2% in the same period. Further, a closely-watched measure of wage inflation, Average Hourly Earnings, is seen increasing by 3.8% in the year through September, maintaining the pace seen in August.

The September jobs data could reinforce the markets’ expectations of a 50 basis points (bps) rate cut at the November meeting even though Fed Chairman Jerome Powell pushed back against such expectations during his speech at the National Association for Business Economics  (NABE) Annual Meeting in Nashville on Monday.

Powell said that “this is not a committee that feels like it’s in a hurry to cut rates quickly.” “If the economy performs as expected, that would mean two more cuts this year, both by a quarter-point, aligning with the forecasts officials penciled in at the September 18 meeting,” he added.

Previewing the September employment situation report, TD Securities analysts said: “We expect payrolls to pick up modestly in September improving to a four-month high after weaker net gains at 89k and 142k in July and August, respectively.”

“The UE rate likely stayed unchanged following August's one-tenth drop to 4.2%. We also look for wage growth to moderate, printing 0.2% MoM (3.8% YoY) after posting an unexpectedly strong 0.4% MoM gain last month,” the analysts said.

How will US September Nonfarm Payrolls affect EUR/USD?

In the run-up to the US NFP data release, markets are pricing in about a 37% chance that the Fed will lower rates by 50 bps in November, down from 53% seen at the start of the week, according to CME Group's FedWatch Tool.

Amidst fading bets for a large Fed rate cut in November and escalating conflict between Iran and Israel, the US Dollar sustains its recovery from over one-year lows against its major rivals.

The mixed Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) data and JOLTS Job Openings data failed to alter the market’s pricing for November’s rate cut move.

The ISM announced on Tuesday that its headline US Manufacturing Index steadied at 47.2 in September and remained deep in contraction while below the 47.5 forecast. US Job Openings rebounded to a three-month high in August, arriving at 8.04 million after declining to 7.71 million in July. 

The Automatic Data Processing (ADP) reported on Wednesday that the US private sector employment increased by 143,000 jobs for September, accelerating from the upwardly revised 103,000 in August and better than the 120,000 estimate. Strong ADP jobs report eased concerns about the health of the US labor market, leaving room for an upside surprise in Friday’s payrolls data.

If the headline NFP reading shows a payroll growth below 100,000, it could suggest further cooldown in the US jobs market, and hence, reinforce the odds of a big cut in November. This could initiate a fresh US Dollar downtrend while pushing EUR/USD back to 1.1200. 

Alternatively, a stronger-than-expected NFP figure alongside hot wage inflation data would fuel expectations that the Fed may opt for a 25 bps rate reduction, providing extra legs to the US Dollar recovery and smashing EUR/USD toward 1.0900.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“The EUR/USD pair has breached the critical 50-day Simple Moving Average (SMA) at 1.1044 amid the renewed downtrend. The 14-day Relative Strength Index (RSI) points south well below the 50 level, currently near 44, suggesting that sellers are likely to retain the upper hand in the near future.”

“On a daily candlestick closing below the 50-day SMA at 1.1044, sellers will flex their muscles toward the 100-day SMA support at 1.0928. Further down, the 200-day SMA at 1.0875 will be the last line of defense for buyers. Alternatively, they need to recapture the 21-day SMA at 1.1102 to negate the bearish pressure in the near term. Further up, the year-to-date (YTD) high of 1.1214 will be tested en route to the 1.1250 psychological barrier,” Dhwani adds.