- The US JOLTS data will be watched closely ahead of the release of the November employment report on Friday.
- Job openings are forecast to remain below 8 million in October.
- The state of the labor market is a key factor for Fed officials when setting policy.
The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday by the US Bureau of Labor Statistics (BLS). The publication will provide data about the change in the number of job openings in October, alongside the number of layoffs and quits.
JOLTS data is scrutinized by market participants and Federal Reserve (Fed) policymakers because it can provide valuable insights regarding the supply-demand dynamics in the labor market, a key factor impacting salaries and inflation. Job openings have been declining steadily since coming in above 12 million in March 2022, indicating a steady cooldown in labor market conditions. In September, the number of jobs declined to 7.44 million, marking the lowest reading since January 2021.
What to expect in the next JOLTS report?
Markets expect job openings to stand at around 7.5 million on the last business day of October. Federal Reserve (Fed) policymakers have made it clear after the July policy meeting that they are shifting their focus to the labor market, given the encouraging signs of inflation retreating toward the central bank’s target.
It is important to note that while the JOLTS data refers to the end of October, the official Employment report, which will be released on Friday, measures data for November.
In October, Nonfarm Payrolls (NFP) rose by only 12,000, as hurricanes and labor strikes impacted hiring in a significantly negative way. Commenting on the employment situation in the US, “the labor market is close to stable, full employment,” said Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee. “It may make sense to slow pace of interest rate cuts as the Fed gets close to where rates will settle,” he added, saying that he has gotten more comfort from the fact that they are not “crashing through full employment.”
The CME FedWatch Tool currently shows that markets are pricing in about a 65% probability of another 25 basis points (bps) rate cut in December. In case there is a positive surprise in the job openings data, with a reading of at or above 8 million, the immediate reaction could boost the US Dollar (USD) by causing investors to reassess the probability of a December rate cut. On the other hand, a disappointing print at or below 7 million could hurt the USD.
“Over the month, hires changed little at 5.6 million. The number of total separations was unchanged at 5.2 million,” the BLS noted in its September JOLTS report. “Within separations, quits (3.1 million) and layoffs and discharges (1.8 million) changed little.”
When will the JOLTS report be released and how could it affect EUR/USD?
Job opening numbers will be published on Tuesday at 15:00 GMT. Eren Sengezer, European Session Lead Analyst at FXStreet, shares his view on the potential impact of JOLTS data on EUR/USD:
“Unless there is a significant divergence between the market expectation and the actual print, the market reaction to JOLTS data is likely to remain short-lived, with investors refraining from taking large positions ahead of the highly-anticipated November labor market data, which will be published on Friday.”
“EUR/USD’s near-term technical outlook suggests that the bearish bias remains intact. The Relative Strength Index (RSI) indicator on the daily chart stays well below 50, and the pair continues to trade below the 20-day Simple Moving Average (SMA).”
“On the upside, 1.0600 (Fibonacci 23.6% retracement level of the October-December downtrend, 20-day SMA) aligns as key resistance. If EUR/USD rises above this level and starts using it as support, technical buyers could take action. In this scenario, 1.0700 (Fibonacci 38.2% retracement) could be seen as the next hurdle ahead of 1.0800 (Fibonacci 50% retracement, 50-day SMA). Looking south, first support could be spotted at 1.0400 (end-point of the downtrend) before 1.0330 (November 22 low) and 1.0300 (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.
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