US JOLTS Data: A Near Term Test for the USD
The US labor market takes center stage again with the release of October’s JOLTS Job Openings data at 1500 today, offering key insights into the Federal Reserve’s next policy steps. After last week’s subdued action driven by month-end flows and the Thanksgiving holiday, the USD is now set to re-align with its fundamental drivers. The Federal Reserve’s outlook on rate cuts hinges significantly on the resilience of the labor market, making today’s data interestingl. A strong reading—job openings at 7.95 million or higher—could reduce the likelihood of a 25bps rate cut in December, adding pressure to EUR/USD as dollar strength intensifies. Conversely, a weak print—job openings at 7.24 million or lower—would bolster expectations for further easing, likely triggering selling pressure in USD/JPY as the market prices in a dovish Fed stance.
The Federal Reserve’s November 7 meeting, which delivered a widely expected 25bps rate cut to 4.50-4.75%, reflected a balancing act. While the Fed acknowledged that inflation is trending toward its 2% target, it remains somewhat elevated. Employment metrics have shown signs of softening but are not alarming, with unemployment steady at 4.1% and wage growth aligning with expectations at 4% y/y. October’s labor market report undershot expectations at just 12,000 jobs added, though this was attributed to temporary factors like hurricanes and Boeing labor disputes. Despite these headwinds, other key metrics like personal consumption expenditures (PCE) remained steady, supporting the Fed’s broader narrative of cautious optimism. Powell’s comments on November 14 underscored this outlook, stating that the economy does not yet signal an urgent need for rate cuts, though upcoming data—including today’s JOLTS, as well as this week’s ADP and NFP reports—will guide short-term dollar direction.
Looking at market sentiment, STIR pricing reflects a 62% chance of a December 25bps cut, cementing a bearish bias for the dollar. However, the Fed’s latest minutes reaffirm its data-dependent stance, keeping all options open. Today’s JOLTS data is the next piece of the puzzle. Strong job openings could align with Powell’s view of a sustainable path for inflation and economic growth, dampening rate cut expectations and lifting the USD. On the other hand, a downside surprise may reassert bearish pressure on the dollar, reinforcing the Fed’s dovish trajectory. Traders should watch for follow-through in EUR/USD and USD/JPY, as today’s data could define the USD’s direction ahead of ADP and NFP on Friday.