- The US JOLTS data will be watched closely ahead of the release of the May employment report on Friday.
- Job openings are forecast to edge lower to 7.1 million in April.
- The state of the labor market is a key factor for Fed officials when setting interest rates.
The Job Openings and Labor Turnover Survey (JOLTS) will be released on Tuesday by the United States (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 into the supply-demand dynamics in the labor market, a key factor impacting salaries and inflation. Job openings have been declining steadily since reaching 12 million in March 2022, indicating a steady cooldown in labor market conditions. In January, the number of job openings came in above 7.7 million before declining to 7.2 million by March.
What to expect in the next JOLTS report?
Markets expect job openings to retreat slightly to 7.1 million on the last business day of April. With the growing uncertainty surrounding the potential impact of US President Donald Trump’s trade policy on the economic and inflation outlook, Federal Reserve (Fed) policymakers have been voicing their concerns over a potential cooldown in the labor market.
The minutes of the Fed’s May 6-7 policy meeting showed policymakers agreed that risks of higher unemployment had risen. Still, Dallas Fed President Lorie Logan argued that risks to employment and inflation goals were “roughly balanced”, adding that it could take “quite some time” to see a shift in the balance of risks.
It is important to note that the JOLTS report refers to the end of April, while the official Employment report, which will be released on Friday, measures data for May. Regardless of the lagging nature of the JOLTS data, a significant decline in the number of job openings, with a reading well below 7 million, could feed into fears about a weakening labor market. In this scenario, the US Dollar (USD) is likely to come under renewed selling pressure with the immediate reaction.
On the flip side, a sharp increase, with a print at or above 7.7 million, could suggest that the labor market remains relatively stable. The CME FedWatch Tool shows that markets don’t expect the Fed to cut the policy rate at the next policy meeting in June, while pricing in a nearly 25% probability of a 25 basis points (bps) reduction in July. This market positioning suggests that a positive surprise could support the USD by causing investors to lean toward a delay of rate reduction to September.
When will the JOLTS report be released and how could it affect EUR/USD?
Job opening numbers will be published on Tuesday at 14:00 GMT. Eren Sengezer, European Session Lead Analyst at FXStreet, shares his technical outlook for EUR/USD:
“The near-term technical outlook points to a buildup of bullish momentum in EUR/USD. The Relative Strength Index (RSI) indicator on the daily chart stays near 60 and the pair pulls away from the 20-day Simple Moving Average, currently located at 1.1280, after dipping below it in the previous week.”
“On the upside, 1.1530-1.1575 (end-point of the three-month-old uptrend, April 21 high) aligns as the first resistance region before 1.1700 (static level, round level) and 1.1780 (upper limit of the ascending channel). Looking south, the initial support area could be seen at 1.1280 (20-day SMA, Fibonacci 23.6% retracement) ahead of 1.1200-1.1180 (50-day SMA, lower limit of the ascending channel) and 1.1080 (Fibonacci 38.2% retracement).”
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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