U.S. Labor Market Shifts to a Lower Gear
The U.S. labor market decelerated in September, with job gains falling short of expectations and unemployment rising, which likely limits the Federal Reserve's options for further tightening. This shift towards a more cautious stance by the Fed aligns with the broader trend of persistent inflation, which continues to exert pressure on economic conditions. As such, the outlook for the U.S. economy—and consequently the USD—looks increasingly bearish as we head into Q4.
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 sentiment expressed in this report appears to align more closely with the upper third, particularly as traders anticipate dovish signals from the Fed following the latest employment data.
How firms align
JPMorgan's latest forecast supports this bearish sentiment towards the USD, targeting 1.10 for EUR/USD, reflecting an alignment with expectations of a less aggressive Fed. Conversely, BofA expresses caution with a lower target of 1.04, positioning itself against the prevailing narrative of USD weakness. For more detailed insights, refer to our internal reports on both firms via /reports/jpmorgan and /reports/bofa.
What the data shows
Recent revisions of forecasts indicate a cautious approach, with expectations of slower economic growth impacting the USD outlook. Further insights can be found in our research piece detailing the effects of labor market changes on currency trends, accessible at /research/labor-market-impact.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01USD faces bearish sentiment following weaker job growth and rising unemployment.
- 02Traders should consider the implications of a potentially dovish Fed.
- 03Key catalyst: upcoming Fed announcements, which could influence the USD trajectory.
- 04Anticipate volatility in USD pairs as market reassesses growth outlook.
Market implications
Traders should monitor the 1.075 level in EUR/USD as it reflects our consensus, with a potential break leading to further tests of resistance. The upcoming Fed meeting will be pivotal and is likely to influence positioning leading into the announcement.
Risks to this view
Should job growth unexpectedly rebound or the Fed signal a more aggressive stance than anticipated, this could reverse the current bearish outlook for the USD. Additionally, shifts in inflation data could prompt reassessments of the Fed's policy trajectory, further complicating current sentiment.
Sentiment by currency
USD EUR~JPY~GBP~Composite USD score: -0.35
Sources & References
How we cover this story