US job growth expected to pick up in October, with moderation in wage gains
The anticipated uptick in US nonfarm payrolls for October highlights continued labor market resilience, though slowing wage growth to below 3% for the first time in over five years may signal a cooling inflationary dynamic. This development is crucial as it supports the narrative that the labor market is not a primary inflation driver, potentially easing pressures on the Federal Reserve's monetary policy outlook. Investors should consider how these trends might influence the USD's strength going forward, particularly if wage moderation persists.
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). This positioning reflects the mixed sentiment influenced by labor market developments and inflation readings.
How firms align
JPMorgan aligns with the headline's view, targeting 1.10 as they anticipate that reduced wage growth will support a softer USD outlook. Conversely, BofA's lower target of 1.04 suggests skepticism around the positive implications of the job growth and wage slowdown, indicating differing assessments of the labor market's influence on monetary policy.
What the data shows
While the forecast remains steady, recent research supports the notion that wage growth moderation could limit inflationary pressures. This aligns with our internal perspectives, as seen in /research/wage-growth-outlook.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Job growth is expected to pick up while wage gains moderate, a critical inflation signal.
- 02Watch for USD fluctuations around labor data and inflation metrics.
- 03A stronger USD might stabilize if wage growth continues to cool.
- 04Labor market strength versus wage softness presents mixed trading signals.
Market implications
Investors should monitor the upcoming NFP report next week for significant volatility, particularly if it deviates from consensus expectations. Watching the 1.075 EUR/USD level is key, as market reactions may hinge on the interpretation of these labor dynamics.
Risks to this view
Should wage growth surprise on the upside or job growth fall short, this could reinforce inflation concerns, potentially reversing the current sentiment around the USD. A surprising jump in wage growth would likely lead traders to reassess Fed rate hike expectations.
Sentiment by currency
USD+EUR~JPY~GBP~Composite USD score: +0.65
Sources & References
How we cover this story