Soft Jobs Report Boosts Market Bets Fed Will Skip October Rate Increase
The recent US jobs report fell short of expectations, prompting a reevaluation of the Federal Reserve's trajectory on interest rates. Market participants are now factoring in a lower likelihood of a rate increase during the Fed's October meeting, which is significant given the current economic climate. This shift not only diminishes the appeal of the US dollar in carry trade strategies but also exacerbates the existing yield curve inversion. Overall, this softening in labor data highlights the central bank’s caution as it grapples with inflationary pressures and economic growth dynamics.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075, with the median across eight firms indicating bullish sentiment. Goldman ranks near the upper bound at 1.12, while BofA holds the lower end at 1.04. The New York Times' article aligns with this view, reflecting broader market sentiments as the Fed's inaction on rates becomes more likely.
How firms align
JPMorgan's position is supportive of the softer job report narrative, with a target of 1.10. This aligns with the upward bias suggested by the soft jobs data. In contrast, BofA's more bearish target of 1.04 suggests a skepticism towards sustained EUR strength, as noted in our reports/bofa.
What the data shows
The revision in expectations following the jobs report aligns with previous insights indicating potential stagnation in US wage growth, which we explored in /research/soft-jobs-impact. This trend will likely weigh on USD as rates are expected to stay stable or even soften.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Fed rate hike odds fall, boosting EUR/USD outlook.
- 02Bearish USD sentiment driven by labor market data.
- 03Watch for volatility around the October Fed meeting.
- 04Strength in EUR can extend towards 1.10 without policy shifts.
Market implications
Traders should keep an eye on the upcoming GDP release and the October Fed meeting for any signals regarding future rate adjustments. A supportive EUR level to watch is 1.075, in line with our consensus target.
Risks to this view
A stronger-than-expected jobs report or aggressive inflation data could shift sentiments rapidly, prompting the Fed to reconsider its current dovish stance. Such catalysts could undermine the bullish narrative for the EUR/USD pair.
Sentiment by currency
USD EUR+JPY+GBP+Composite USD score: -0.65
Sources & References
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