Will September NFP Data Lead to a Double Fed Rate Cut?
As the market eagerly awaits the US employment report scheduled for Friday at 13:30 GMT, speculations surrounding the possibility of a double Fed rate cut are gaining momentum. With Fed fund futures indicating a 40% chance of a 50bps September cut, investors are closely monitoring the upcoming data release to gauge the Federal Reserve’s next move.
The Dollar’s Performance and Expectations for Rate Cuts
The Dollar faced a challenging period in August, falling against major currencies amid growing expectations of interest rate cuts by the Fed. Market participants are anticipating a total reduction of around 105 basis points by the end of the year, with the potential for a double 50bps cut in the upcoming decisions.
Fed Chair Powell’s recent remarks at Jackson Hole further fueled speculation of a more dovish stance, particularly emphasizing the significance of the labor market. Powell’s comments have heightened the importance of Friday’s employment report, as investors assess the potential impact on the Fed’s monetary policy decisions.
Forecasts and Market Sentiment
Forecasts suggest an improvement in nonfarm payrolls, with expectations of an increase to 164k from 114k in July. Additionally, the unemployment rate is projected to decrease to 4.2% from 4.3%, while average hourly earnings are anticipated to accelerate to 0.3% from 0.2% in monthly terms.
Considering the recent upward revision of Q2 GDP and the Atlanta Fed GDPNow model forecasting a 2.0% growth rate for Q3, positive job data could sway traders towards a more conservative 25bps rate cut at the upcoming Fed meeting. This scenario could potentially strengthen the Dollar as Treasury yields continue to recover.
Potential Downside Risks
Despite optimistic forecasts, preliminary PMI surveys have raised concerns about employment trends. Reports indicate a decline in employment in August, with the ISM manufacturing PMI employment subindex remaining below the critical 50 threshold. These findings pose downside risks to Friday’s report and could trigger market volatility if realized.
The Impact on Currency Markets
From a technical perspective, the euro/dollar pair has been experiencing a corrective phase following resistance at 1.1200 in late August. Currently hovering near the 1.1040 level, a break below this barrier could lead to further declines towards 1.0950. However, the pair remains above key support levels, suggesting potential bullish momentum in the future.
In the event of a softer-than-expected jobs report, the euro/dollar pair could surge without a correction, potentially breaching the 1.1200 zone. This outcome may fuel bullish sentiment and drive the pair towards higher resistance levels, such as the July 2018 high at 1.1275.
Conclusion
With the September NFP data poised to impact the Fed’s monetary policy decisions, investors are closely monitoring the upcoming employment report for insights into the labor market’s health. The possibility of a double Fed rate cut remains on the table, with market sentiment shifting based on the outcome of Friday’s data release. As uncertainties persist in global markets, traders are preparing for potential volatility and its implications on currency movements.
