- The US JOLTS data will be watched closely ahead of the release of the September Nonfarm Payrolls report on Friday.
- Job Openings are forecast to edge lower to 7.1 million in August.
- The state of the labor market is a key factor for Fed officials when setting interest rates.
The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday by the United States (US) Bureau of Labor Statistics (BLS). The publication will provide data about the change in the number of Job Openings in August, alongside the number of layoffs and quits. Markets expect Job Openings in August to decline slightly to 7.1 million compared to the previous month’s reading of 7.181 million.
JOLTS data is scrutinized by market participants and Federal Reserve (Fed) policymakers because it can provide valuable insights into the supply-demand dynamics in the labor market, a key factor impacting salaries and inflation. Job Openings have been declining steadily since reaching 12 million in March 2022, indicating a steady cooldown in labor market conditions. In January of this year, the number of Job Openings came in above 7.7 million before declining to 7.2 million by March. Since then, JOLTS Job Openings rose for two consecutive months, reaching 7.7 million in May. Nevertheless, summer months highlighted a further softening in labor, with openings sliding below 7.2 million in July.
What to expect in the next JOLTS report?
Job Openings are expected to edge lower to 7.1 million in August. Fed policymakers have been growing louder in pointing out their concerns over the labor market outlook.
Following the decision to lower the policy rate by 25 basis points at the September policy meeting, Fed Chair Jerome Powell acknowledged that job gains are running below the breakeven rate. On a more dovish note, Fed Governor Michelle Bowman argued that the recent downward revisions to employment data suggest that the Fed is even further behind the curve on interest rate cuts than previously estimated. Similarly, Kansas City Fed President Jeffrey Schmid explained that the September rate cut was appropriate to offset risks to the labor market but added that recent data point to rising risks.
The CME FedWatch Tool shows that markets nearly fully price in another 25 bps rate cut in October, while seeing about a 30% probability of a policy hold in December. A significant negative surprise in the JOLTS Job Openings data, with a reading well below 7 million, could feed into expectations for two more rate cuts and weigh on the US Dollar (USD) with the immediate reaction.
Conversely, a reading near or above the market consensus could help the USD stay resilient against its peers, at least until Friday’s Nonfarm Payrolls official employment report for September.
When will the JOLTS report be released and how could it affect EUR/USD?
Job Openings will be published on Tuesday at 14:00 GMT. Eren Sengezer, European Session Lead Analyst at FXStreet, shares his technical outlook for EUR/USD:
“The near-term technical outlook points to a lack of directional momentum. The Relative Strength Index (RSI) indicator on the daily chart stays close to 50 and the pair trades at around the 20-day and the 50-day Simple Moving Averages (SMAs).”
“On the downside, the 100-day SMA forms a critical support level at 1.1600 ahead of 1.1530 (Fibonacci 23.6% retracement of the February-September uptrend) and 1.1300 (Fibonacci 38.2% retracement). Looking north, resistance levels could be spotted at 1.1800 (round level), 1.1920 (September 17 high) and 1.2000 (static level, round level).”
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
