Traders now see little chance of a Fed rate hike in October after weak jobs report
The unexpected softness in the September jobs report has significantly muted traders' expectations for a Federal Reserve rate hike in October. This shift reflects growing concerns about the U.S. economic outlook amid persistent inflation pressures, jeopardizing the Fed's path towards tightening. With a near-certain absence of an October rate hike now factored in, the market is beginning to entertain the prospect of a rate cut cycle arriving sooner than anticipated.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The recent shift in the Fed's tightening narrative will likely exert upward pressure on the euro in this context.
How firms align
JPMorgan's target of 1.10 aligns with the bearish sentiment following the jobs data, suggesting a stronger euro performance as market participants recalibrate expectations. Conversely, BofA remains cautious with a target of 1.04, reflecting a more conservative view amidst the turbulence in labor metrics.
What the data shows
Recent revisions highlight the shrinking odds of Fed tightening, as covered in /research/fed-outlook. This has prompted adjustments in traders' positions across major pairs, as indicated by our FX sentiment scoring.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Weak jobs data diminishes October hike odds and stirs market expectations.
- 02Traders now reposition for potential future easing rather than tightening.
- 03Focus shifts to October inflation data as a potential catalyst for further rate outlook changes.
Market implications
Traders should monitor the 1.075 level in EUR/USD closely, as a sustained break above this point could signal increased bullish momentum. The upcoming inflation report is key; volatility may ensue as this data unfolds compared to expectations.
Risks to this view
A reversal of this bearish USD outlook would be triggered by unexpectedly strong economic indicators or a significant shift in Fed communication returning to a tightening bias. Should October inflation figures surprise positively, that could reignite hike speculation.
Sentiment by currency
USD EUR+JPY+GBP+Composite USD score: -0.65
Sources & References
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