The dynamics of interest rate changes seem to be unprecedented, yet the US labor market still seems to remain strong and not react to a possible economic slowdown or more expensive venture financing and credit. Will this time be different?
The vacations and the travel and vacation season, which usually helps in finding casual work, have already ended, showing, for example, an increase in employment in the tourism, leisure or hospitality sectors. As a result, the U.S. unemployment rate may have fallen as recently as September to 3.5 percent, at which time the number of unemployed fell by 261,000 to 5.75 million, while the number of employed rose by 204,000 to 158.9 million. The labor force participation rate fell to 62.3 percent from 62.4 percent, but it is now expected that new job growth may slow down.
US labor market data
Trading Economics reports that the U.S. economy likely added 200,000 jobs in October 2022, which would mark the third consecutive month of slowing job growth and the weakest reading since December 2020. The unemployment rate is also expected to rise to 3.6 percent from 3.5 percent last month. October's data could likely point to a strong, albeit slowing, labor market, as labor shortages continue to persist. It's also worth remembering that the labor market seems to be the latter, responding to changes in the economy due to inflation and rising interest rates. Data from the U.S. economy were released at 1:30 p.m. today.
How might the US dollar react?
Source: Conotoxia MT5, EURUSD, Daily
The rate of the main currency pair EUR/USD is still below parity. Nevertheless, it is trying to make up for some of the losses that followed the announcement of the US interest rate decision and Jerome Powell's press conference. Today's data would perhaps raise forex volatility again, as it could have an impact on the Fed's next steps. If the labor market situation were to begin to deteriorate, the Fed may decide to take a slower pace of interest rate hikes in its next steps. Meanwhile, a still-strong labor market could reassure the Fed that there are no concerns about the effects of monetary tightening.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
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