US Labor Market Conditions Weigh on Fed Rate Hike Expectations

US employment data is set to influence market pricing of a potential Federal Reserve interest rate hike in October. The September Nonfarm Payrolls (NFP) report, scheduled for release on Friday at 12:30 GMT, is expected to show an increase of 90K jobs following August's impressive 162K rise.

The Unemployment Rate is forecast to remain steady at 4.1%, while Average Hourly Earnings (AHE) are projected to hold steady at 0.3%.

TD Securities expects a softer headline number, predicting NFP to reach only 50k and the unemployment rate to rise to 4.2%. The bank attributes this slowdown to 'a reversal in seasonal factors', with private payrolls likely led by healthcare and leisure & hospitality sectors, while government hiring is expected to be flat.

Analysts at OCBC note that recent claims data have continued to trend lower, suggesting labor market conditions remain firm. They warn that the risk of an upside payrolls surprise appears to be increasing, with a stronger-than-expected employment report likely reinforcing expectations of further Fed tightening and supporting the USD.