The US Dollar (USD) traded lower against major currencies ahead of the release of the United States (US) Nonfarm Payrolls (NFP) data for September, scheduled for 12:30 GMT. In European trading, the USD/JPY pair fell by 0.3% to near 157.60, reflecting broad-based USD weakness, with the US Dollar Index (DXY) down 0.15% to 101.88, retreating from its yearly high of 102.20 posted on Thursday [1]. The USD was the weakest against the Swiss Franc, declining by 0.31%, and lost 0.30% against the Japanese Yen on the day [1].
Market consensus, as cited by OCBC and other analysts, expects September NFP to rise by 90,000, a notable slowdown from August’s 162,000 increase, with the unemployment rate forecast to remain unchanged at 4.1% [1][2]. However, TD Securities projects an even softer print, anticipating only a 50,000 increase in payrolls and a rise in the unemployment rate to 4.2%, attributing the slowdown to seasonal factors and a reversal in local government hiring [2]. Wage inflation, as measured by Average Hourly Earnings (AHE), is expected to hold steady at 0.3% month-over-month according to consensus, but TD forecasts a subdued 0.1% m/m (3.0% y/y) [2].
Analysts at OCBC note that recent jobless claims data have continued to trend lower, suggesting labor market conditions remain firm, and see a risk of an upside surprise in payrolls. They argue that a stronger-than-expected employment report would likely reinforce expectations of further Federal Reserve (Fed) tightening and provide additional support for the USD [1]. Conversely, TD Securities suggests that any dovishness in the report should be viewed in the context of seasonal factors and rising participation, implying that softer headline numbers may be less meaningful for the broader policy outlook [2].
The Fed’s September meeting saw a 25 basis point rate hike, with policymakers highlighting that job gains have kept pace with the workforce and the unemployment rate has changed little [2]. Fed Chair Kevin Warsh stated that the labor side of the Fed’s remit is in good shape, while other Fed officials, including Philadelphia Fed President Anna Paulson and Chicago Fed President Austan Goolsbee, signaled the possibility of further rate hikes due to persistent inflation and concerns about economic overheating [2].
On the Japanese side, Tokyo’s Consumer Price Index (CPI) data for September came in stronger than projected, with Tokyo CPI ex. Fresh Food rising to 2.7% year-on-year from 1.8% in August (forecast was 2.4%), and Tokyo CPI ex. Food, Energy accelerating to 3% YoY from 2% previously [1]. This robust inflation data may also be influencing the JPY’s relative strength against the USD.
CONCLUSION
The US Dollar weakened ahead of the September NFP release, with markets anticipating a softer jobs report but remaining alert to the risk of an upside surprise. Divergent analyst forecasts and ongoing Fed hawkishness underscore uncertainty about the policy outlook. Stronger-than-expected US employment data could revive USD strength, while robust Japanese inflation data is supporting the Yen.