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Will US JOLTS job openings data change market expectations of Fed rate cuts for September?

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6 months ago

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Will US JOLTS job openings data change market expectations of Fed rate cuts for September?

  • The US JOLTS data will be watched closely by investors ahead of the May jobs report.
  • Job openings are forecast to edge lower to 8.34 million on the last business day of April.
  • Markets don’t expect the Fed to lower the policy rate at least until September.

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 April, 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 trending down over the last year and a half, pointing to cooling conditions in the labor market. In March, the number of job openings stood at 8.48 million, marking the lowest reading since February 2021.

What to expect in the next JOLTS report?

“Over the month, the number of hires changed little at 5.5 million while the number of total separations decreased to 5.2 million,” the BLS noted in its March JOLTS report and added: “Within separations, quits (3.3 million) and layoffs and discharges (1.5 million) changed little.”

Following the 9.3 million openings announced in September, job openings remained below 9 million for six consecutive months. Investors expect job openings to edge lower to 8.34 million in April from 8.48 million in March. Meanwhile, Nonfarm Payrolls rose by 175,000 in April following the impressive 315,0000 increase recorded in March. 

After closing the first four months of the year in positive territory, the US Dollar (USD) Index, which measures the USD’s valuation against a basket of six major currencies, lost more than 1.5% in May. Investors remain hopeful that the Federal Reserve (Fed) could opt for a 25 basis points reduction in the policy rate in September. According to the CME FedWatch Tool, the probability of a policy pivot stands at nearly 55%.

FXStreet Analyst Eren Sengezer shares his view on the JOLTS Job Openings data and the potential market reaction:

“In case the JOLTS Job Openings data for April comes in at or below 8 million, it could reaffirm loosening conditions in labor market and weigh on the USD with the immediate reaction. On the other hand, a reading above 9 million could cause investors to refrain from pricing in a rate cut in September, at least until May jobs report, and allow the USD to outperform its peers.”

When will the JOLTS report be released and how could it affect EUR/USD?

Job openings numbers will be published on Tuesday, June 4, at 14:00 GMT. Eren points out key technical levels to watch for EUR/USD ahead of JOLTS data:

“The Relative Strength Index (RSI) indicator on the daily chart holds comfortably above 50, highlighting a lack of bearish pressure. Following the uptrend that ended on May 16, the pair stabilized above the 1.0780-1.0800 region, where the 50-day, 100-day and 200-day Simple Moving Averages (SMA) are located. If EUR/USD drops below that area and starts using it as resistance, technical sellers could take action. In this scenario, further losses toward 1.0700 (psychological level, static level) and 1.0600 (2024-low set on April 16) could be seen.”

“In case EUR/USD continues to use 1.0780-1.0800 area as support, buyers could remain interested and open the door for a leg higher toward 1.0900 (static level, psychological level), 1.0950 (static level) and 1.1000 (psychological level, static 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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