US Nonfarm Payrolls growth expected to accelerate in October

• A 65K increase in US Nonfarm Payrolls is forecast for October, compared with September’s disappointing gain of 29K.
• At 4.2%, the Unemployment Rate is expected to hold steady.
• Despite widespread market expectations of a 25 bps rate hike in December, the employment figures could affect the US Dollar’s valuation.

An increase of 65K jobs is expected in October, compared with 29K in the preceding month. The United States (US) Bureau of Labor Statistics (BLS) will publish the October Nonfarm Payrolls (NFP) report on Friday at 13:30 GMT. 

A 25 basis points (bps) increase in the policy rate by the Federal Reserve (Fed) in December is widely anticipated by market participants. Nevertheless, details within the employment report could shape their assessment of the policy outlook for early 2027, influencing the US Dollar’s (USD) valuation.

Nonfarm Payrolls Expected to Recover After September’s Disappointment

Following September’s disappointing gain of 29K, investors anticipate an October NFP increase of 65K. Forecasts put the Unemployment Rate at an unchanged 4.2%. Monthly wage inflation, measured by the change in Average Hourly Earnings (AHE), is expected to accelerate from 0.1% to 0.3%.

As expected, the Fed maintained its policy rate within the 3.75%-4% range at the October meeting. Speaking at the subsequent press conference, Fed Chair Kevin Warsh characterised labour market conditions as “positive,” and said policymakers’ discussions centred primarily on the price stability mandate. A substantial downside surprise in the employment figures would therefore be needed to make a notable change in market pricing for next month’s Fed rate decision likely.

TD Securities expects the US Dollar to enter a period of consolidation towards year-end following its strong rally since September. Reaffirming its view, the bank states that “after a sharp rally since September, our base case has been for the USD to see a modest relief selloff into year-end, similar to how the USD had performed following the 2018 US midterm election.” Forthcoming labour market figures could prove decisive, according to its strategists, who observe that “a lower-than-consensus payrolls number could provide an additional catalyst for the USD retracement to take shape.” Against that backdrop, they “expect October NFP to remain subdued at 40k after job gains moderated to 29k in September,” supporting the view that weaker US figures would help prolong the Dollar’s post-election retreat.  

US October Nonfarm Payrolls Set to Influence EUR/USD

Democratic victories in both the Senate and the House in the midterm elections put the US Congress under the party’s control for the last two years of Donald Trump's presidency. The US Dollar faced intense selling pressure midweek following the result. Greater optimism that the Middle East conflict would de-escalate after the elections also prompted a steep fall in crude oil prices, tempering concerns about persistent inflation. 

For ING analysts, “a still-resilient US economy and at least one more rate hike from the Federal Reserve” limit the room for a further Dollar correction in the near term. Their assessment of the medium-term risks is less supportive, however. They caution that “the Dollar could see a little more weakness into 2027, however, if an emboldened Democratic Party takes greater issue with Republican policy, including deregulation and the AI build-out.” 

With the CME FedWatch Tool currently putting the probability of a January Fed rate hike at around 20%, an NFP reading at or below 30K could lead markets to discount such a move. That disappointing outcome could intensify USD selling ahead of the weekend, allowing EUR/USD to extend its weekly advance.

By contrast, a reading above 80K would represent a sizeable upside surprise and could give the USD an immediate lift, prompting a downward correction in EUR/USD. Any lasting benefit to the USD from the employment figures could nevertheless be limited if investors avoid sizeable positions before next week’s key US inflation releases.

A brief EUR/USD technical assessment comes from Eren Sengezer, European Session Lead Analyst at FXStreet: 

“The near-term technical outlook suggests that EUR/USD is struggling to complete a bullish reversal. The pair holds above the 20-day Simple Moving Average (SMA) but the Relative Strength Index (RSI) indicator on the daily chart stays slightly below 50.”

“On the upside, 1.1350 (static level, 50-day Simple Moving Average (SMA), former support) aligns as the first resistance level ahead of 1.1420 (100-day SMA). A daily close above the latter could attract technical buyers and open the door for an extended bullish action toward 1.1540 (200-day SMA).”

“Looking south, the first support level could be spotted at 1.1130 (lower arm of the Bollinger Bands) before 1.1000 (static level, round level).”