US job openings dropped by 418,000 to 7.443 million in September, coming in below market expectations and marking the lowest level since January 2021, suggesting a cooling labour market. Despite this, the US dollar remains near three-month highs as investors await a series of upcoming risk events. US stocks were mixed, buoyed by gains in technology shares ahead of significant earnings reports and economic data releases.
With roughly a week to go before the Federal Reserve’s decision, these job openings figures contrast with the September employment report, which indicated a still-robust labour market. This has led traders to scale back expectations of a substantial rate cut. The latest data due this Friday could carry significant weight for the Fed, with the probability of a 25 basis point rate reduction currently around 95%. Meanwhile, speculation surrounding a potential Donald Trump victory has also supported the dollar, given his policies on tariffs, taxes, and immigration, which are viewed as inflationary. However, polling remains tight, and uncertainty about market reactions to the elections is high.
According to FX options, the market expects most of the foreign exchange volatility to materialise around the election week, possibly due to an uncertain outcome and the Fed meeting scheduled for the same period. In fact, the two-week implied-realised volatility spread for EUR/USD is at its highest since the volatile 2017 French elections.
Sterling Gains Ahead of Budget Announcement
The British pound is approaching the $1.30 mark against the US dollar once more, buoyed by increased risk appetite, which has also driven equities higher and seen Bitcoin nearing fresh record highs. Against the euro, sterling is similarly pushing upward, establishing a solid base around €1.20 as the UK’s Budget announcement approaches—a key domestic event. Should the market believe the new tax increases will negatively impact UK growth potential, the pound may face selling pressure. However, we anticipate an expansionary budget, as the Chancellor has modified the UK’s fiscal rules to allow additional borrowing for investment in growth-promoting projects, which could explain why sterling has strengthened this week.
If the Budget prompts rates traders to temper expectations for future Bank of England rate cuts, the pound could experience renewed demand, supported by more favourable rate differentials.
AUD/USD at Two-Month Low
The AUD/USD pair is technically trading near its 200-day moving average of 0.6658 and other nearby levels, which could provide potential for a reversal. Short-term resistance levels are at 0.6739 and 0.6817, while the next short-term support sits at 0.6348.
Australia’s CPI data, expected today, forecasts a year-on-year decrease in headline CPI inflation from 3.8% in Q2 to 2.9% in Q3. Due to a 7% quarterly fall in fuel prices and a 15% quarterly drop in electricity costs, we expect a modest 0.3% quarterly rise in Q3 headline CPI. The core CPI is expected to increase more noticeably by 0.7% quarter-on-quarter and 3.4% year-on-year. Service prices likely rose by a concerning 1.0% quarter-on-quarter and 4.5% year-on-year, although we estimate that annual inflation decreased to around 2.3% in September from 2.7% in August, reflecting recent reductions in fuel and electricity costs based on the latest monthly CPI data.
