Investors are gearing up for the release of key U.S. jobs data on Friday, which is expected to shape the Federal Reserve’s next steps on interest rates. The dollar index edged lower in recent trade but remains on track for its biggest weekly gain in nearly six months, as traders temper expectations for aggressive rate cuts by the Fed. A stronger-than-anticipated payrolls report could further curb hopes for deeper rate reductions, keeping markets on edge.
All eyes are on the September payrolls report, where the unemployment rate is forecast to remain steady at 4.2%, while nonfarm payrolls are projected to rise by 150,000. Market participants are particularly attuned to any upward movement in the unemployment rate, which could recalibrate expectations for the Fed’s policy approach. According to analysts at Saracen Markets, a slight uptick in unemployment could reignite speculation for a 50-basis-point rate cut at upcoming Federal Open Market Committee (FOMC) meetings, depending on how the Fed interprets the data.
Initial applications for U.S. unemployment benefits saw a modest increase last week, but the numbers remain consistent with a relatively low level of layoffs. Continuing claims, which serve as a gauge of the number of Americans receiving ongoing unemployment benefits, showed little movement from the prior week, indicating a still-resilient labor market.
Geopolitical risks, particularly the conflict in the Middle East, continue to underpin safe-haven demand for the U.S. dollar. Should the U.S. jobs report exceed expectations, the dollar could see further support, as markets reassess the likelihood of substantial Fed rate cuts amid persistent global uncertainty. Investors will also be closely watching how any surprise in the payroll numbers could influence Fed officials’ tone in the coming weeks.