US Jobless Data, Core PCE, and Key Implications for Tomorrow’s NFP
Today’s release of US jobless claims and Core PCE inflation data are pivotal in setting market expectations ahead of tomorrow’s Nonfarm Payrolls (NFP) report, especially as the Short-Term Interest Rate (STIR) market currently prices in a 96% probability of a Fed rate cut at the November meeting. For those looking to short the USD, today’s data could offer essential signals for USD direction and reveal more about the Fed’s approach to the evolving economic landscape.
Jobless Claims and Core PCE: Key Thresholds
The jobless claims data will offer insights into any softening in the labor market, particularly if initial claims rise to 246K or higher and continuing claims reach or exceed 1.996 million. This would indicate a less resilient labor sector, adding to broader market speculation about a dovish Fed stance. A reading like this in jobless claims would increase expectations that the Fed might adjust its outlook, given the potential for cooling employment data as we approach year-end.
In addition, Core PCE, the Fed’s preferred inflation gauge, is equally critical. A miss here—with a monthly figure of 0.1% or lower and an annual figure of 2.5% or lower—would support the view that inflationary pressures are easing more quickly than anticipated. If broader PCE figures also fall short, showing a monthly rate of 0.0% and an annual rate of 1.9% or lower, markets may interpret this as a signal that the Fed has room to adopt a more dovish policy. In this case, today’s combined labor and inflation data would likely result in increased USD selling, benefiting EURUSD and gold buyers.
Implications for Tomorrow’s Nonfarm Payrolls
Tomorrow’s NFP report, expected to reflect a cooldown with 115K new jobs, comes amid additional headwinds. October’s data could be skewed lower due to external factors like industrial strikes and recent hurricanes. Analysts suggest that these factors may subtract as many as 100K jobs from the headline payroll number, potentially resulting in a softer-than-expected figure. Should NFP indeed come in below forecast, this would likely validate dovish Fed expectations and further boost EURUSD and gold.
Notably, while the NFP headline figure is important, markets will be watching closely for signs of cooling wage growth. A slower pace of wage gains would suggest that inflationary pressures from the labor market are easing, reinforcing the case for a Fed cut. The combination of softer wage growth, elevated jobless claims, and a PCE miss would position the Fed to announce a rate cut more confidently next week. Given that the STIR market is already pricing in a 96% chance of a cut, any additional weakness in these data points would likely solidify these expectations.
Market Reaction
In summary, weaker-than-expected results in today’s jobless and PCE data, followed by a soft NFP tomorrow, would likely support a near-term dovish Fed narrative, leading to increased USD selling and strength in EURUSD and gold. This setup places EURUSD buyers and gold buyers in a favorable position as the markets continue to weigh the Fed’s response to cooling labor and inflation dynamics.