US payrolls rose by just 29,000 in September, well below the 90,000 forecast. Yet the dollar still finished the week higher.
That contrast sets up this trading week ahead. Weak data cut expectations for another Fed hike, but the US Dollar Index still closed above a key resistance level.
The calendar is light, so Wednesday’s FOMC minutes take centre stage. Meanwhile, oil prices and Europe’s fiscal concerns could matter as much as US data.
US Dollar: Softer Data, Firm Dollar
The September jobs report was weak across several measures. Payrolls missed forecasts, revisions cut earlier months, and unemployment rose from 4.1% to 4.2%.
Wage growth also disappointed. Average hourly earnings rose 0.1% for the month, against an expected 0.3%.
Inflation data pointed the same way. Earlier in the week, core PCE prices rose 0.2% month on month, below the 0.3% forecast.
However, not every release was soft. The third estimate put annualised second-quarter GDP growth at 2.2%, above the expected 1.5%. Later revisions remain possible.
How Rate Expectations Shifted
Markets responded by scaling back expectations for further Fed tightening. The implied probability of an October hike stood at 64.2% a week before the jobs report.
After payrolls, estimates ranged from roughly 17% to 23%. These figures describe changing market prices, not a fixed forecast or a Fed commitment.
Treasury yields fell after the release, and US equities rallied into Friday. The dollar also lost some ground as traders unwound expectations of an imminent hike.
Why the Dollar Held Up
Still, those losses stayed limited. The Dollar Index reached an 18-month high during the week and closed above resistance at 101.39.
Relatively high US Treasury yields may help explain that resilience. The 10-year yield had exceeded 5.20% before the post-report decline. However, that earlier level should not be mistaken for Friday’s closing yield.
A less imminent hike is not the same as a rate cut. Therefore, weaker expectations for tightening can coexist with a still-elevated level of US rates.
Why Energy Risks Still Matter
Before the jobs report, markets faced a more inflationary mix. Elevated energy prices and higher global bond yields, linked to the US-Israel/Iran conflict, had revived concern about tighter policy.
Higher oil prices can lift inflation and increase pressure on central banks to keep policy restrictive. However, energy costs can also weaken growth. Currency reactions depend on how those effects compare across economies.
Friday brought some relief. Expectations of recovering Middle Eastern supply pushed WTI crude down 3.7% to $89.43, while Brent fell 2.7% to $99.45.
Talk of releasing European diesel reserves added to that pressure. As a result, lower crude eased immediate inflation concerns and reinforced the dovish repricing of Fed expectations.
However, developments in the Gulf can change that picture quickly. Uncertainty around the Strait of Hormuz remains an important influence on energy markets.
On the chart, WTI held support near $87.68 last week. It also held the lower trend line of its rising channel.
For currencies, the implications extend beyond the oil price itself. Renewed inflation concerns can alter rate expectations, while supply disruptions can affect growth and demand for defensive assets.
What Differs Across EUR/USD, GBP/USD and USD/MXN
EUR/USD: A Europe-Specific Problem
EUR/USD fell to a 16-month low last week, approaching the 1.1200 handle. The pair then recovered some of those losses towards the weekly close.
Notably, the decline came despite firmer euro-area inflation. Higher inflation can support a currency by lifting rate expectations. This time, however, Europe-specific risk outweighed that effect.
France’s fiscal concerns accompanied a sharp widening in the spread between French and German government bond yields. A wider spread indicates a higher relative yield on French debt. Meanwhile, markets scaled back expectations of an imminent ECB hike.
Technically, the pair tested its 200-week exponential moving average (EMA). The weekly chart also shows a sequence of lower highs and lower lows. Above current trading, the 1.14 area serves as a reference level.
GBP/USD: At the Bottom of Its Range
GBP/USD sits near the bottom of a range that has held since February. The 1.3150 level and the 200-week EMA mark support, while resistance sits near 1.37.
Sterling has a different domestic backdrop from the euro. However, US rate expectations remain relevant to both pairs, alongside their respective local economic risks.
Last week’s neutral candle provides context for the test of support. However, a chart pattern alone cannot establish traders’ motives or guarantee that the range will hold.
USD/MXN: A Changing Rate Gap
The dollar rallied against the Mexican peso during the week. However, it pulled back from 18.41, where the 200-week EMA sits, as US rates drifted lower.
Mexico still offers higher interest rates than the United States. Earlier increases in US yields had narrowed that advantage. However, Friday’s decline shows why the gap should not be treated as moving in only one direction.
The rate gap also helps explain interest in carry trades, which seek returns from differences in yields. However, exchange-rate losses can outweigh that interest advantage.
The nearby 18.50 area adds technical context. It does not establish how the rate gap or exchange rate will develop.
Key Events This Week (ET)
The selected events below focus on central bank communication and Canadian employment. All times use Eastern Time and may change.
- Tue Oct 6, 2:35 AM: BOJ Gov Ueda Speaks (JPY)
- Wed Oct 7, 2:00 PM: FOMC Meeting Minutes (USD)
- Fri Oct 9, 8:30 AM: Employment Change and Unemployment Rate (CAD)
Wednesday: FOMC Minutes
Wednesday’s minutes cover the September 15-16 meeting. Therefore, they document a discussion that took place before the September jobs report and subsequent market repricing.
That timing matters. The minutes may show how strongly officials favoured further tightening before the data softened. However, they cannot reveal how officials responded to information that arrived after the meeting.
Tuesday and Friday: Ueda and Canadian Jobs
BOJ Governor Kazuo Ueda speaks early on Tuesday. Yen traders will likely watch for any comment on the Bank of Japan’s policy path.
Canada’s employment report follows on Friday. The previous release showed a loss of 41,700 jobs, with unemployment at 6.4%. Consequently, this report could shape expectations for the Canadian dollar.
What This Means for Traders
The central question is whether the dollar’s resilience can withstand softer US data.
With few major releases, interpretation may matter more than new figures. The minutes, oil headlines and Europe’s fiscal concerns could each shift the picture.
The pairs also differ in their local context. EUR/USD faces European fiscal risks, GBP/USD sits near range support, and USD/MXN reflects changing relative rates.
Together, these differences explain why the weekly dollar gain and Friday’s retreat can both matter. The time frame and the other currency help explain each pair’s response.
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Frequently Asked Questions
Why Did the Dollar Hold Up After Weak Jobs Data?
The dollar lost ground after the report but retained a weekly gain. Relatively high US yields offer one possible explanation. However, the weekly result does not mean the dollar ignored the weaker data.
How Did the Jobs Report Change Fed Expectations?
The implied probability of an October hike fell from 64.2% a week earlier to roughly 17-23% after payrolls. However, market probabilities change and do not represent a commitment from policymakers.
Why Did EUR/USD Fall Despite Higher Euro-Area Inflation?
France’s fiscal concerns widened the spread between French and German bond yields. Markets also scaled back expectations of an imminent ECB hike. As a result, Europe-specific risk outweighed the support from firmer inflation.
What Are the FOMC Minutes?
The minutes provide a detailed record of a past policy discussion. This week’s release covers September 15-16. Therefore, it shows the Fed’s thinking before the September jobs report, rather than its response to that report.
Disclaimer
This article serves educational purposes only. It does not constitute investment advice, a recommendation, or a solicitation to trade any financial instrument. ThinkCapital’s challenge programs use simulated trading in a virtual environment; they do not place real capital in live markets. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Technical levels discussed here describe current market structure; they do not predict future results.
