The US non-farm payrolls report is about to be released. Will it further boost the US dollar?
2026-10-02 19:28:18
On Friday (October 2), during the European session, the US dollar index stood at 102.01, down 0.02%. On Thursday, the US dollar outperformed most major currencies, with the largest gain against the euro, but remained weak against the Swiss franc and the Canadian dollar. 
The previous strength of the US dollar was still driven by the continued sell-off in the bond market, which led to a rise in US Treasury yields. The 10-year Treasury yield reached 5.344%, the highest level since 2002. However, borrowing costs fell later in the day ahead of the crucial non-farm payroll report. Despite rising yields and a stronger dollar, market expectations for a Fed rate hike in October remained low, with a probability of about 25%. At the beginning of the week, market expectations for consecutive Fed rate hikes once reached as high as 70%, but New York Fed President John Williams said that it might be appropriate to raise rates again "later this year," and Fed Vice Chairman Philip Jefferson said that it "may take more time" to determine subsequent policy adjustments. These statements prompted investors to lower their Fed rate hike expectations. Currently, the market expects the next rate hike to fall in December; at the same time, the market has priced in a cumulative rate hike of 80 basis points by the end of 2027. This means that investors have not only postponed their expectation of an October rate hike to December, but have also eliminated an expectation of a 25 basis point rate hike. Will strong non-farm payroll data further boost the dollar? Against this backdrop, the September non-farm payroll data released today will be closely watched. The market expects September's non-farm payrolls to fall to 89,000 from 162,000 in August; the unemployment rate is expected to remain unchanged at 4.1%; and the year-on-year growth rate of average hourly earnings is expected to rise slightly from 3.1% to 3.2%. The S&P Global Purchasing Managers' Index (PMI) shows that September's job expansion rate hit a new high since June 2022, a rare occurrence since the index was first published in 2009. This suggests a risk that the non-farm payroll data may exceed expectations. Even if a strong non-farm payroll report does not significantly increase the probability of an October rate hike, it could still provide further impetus for the dollar's rise. Following Williams and Jefferson's speeches, investors still believe December is a more appropriate time for the next rate hike, but will revise their cumulative rate hike expectations up to the end of 2027. French fiscal concerns intensify, putting pressure on the euro. Euro/dollar traders are facing more than just US Treasury yields, expectations of a Fed rate hike, and the upcoming non-farm payroll report; French fiscal pressure has become a direct market risk weighing on the euro. The French government is drafting its 2027 budget, planning to save €54 billion, but the fragmented domestic political landscape makes its passage and implementation highly uncertain. Affected by these concerns, French bond yields have surged, widening the Franco-German bond spread to approximately 133 basis points, the highest level since the Eurozone crisis. The euro/dollar pair found support near the key level of $1.1205 and rebounded slightly; however, if tonight's US non-farm payroll data is strong, bears may push the exchange rate below this level, falling back to levels seen in May 2025. The next key support level is at the May 16 low of $1.1130. Ahead of the non-farm payroll data release, US stock market performance was constrained by US Treasury yields. The three major US stock indices all closed higher on the first trading day of the new quarter, but gains were limited: the S&P 500 rose 0.19%, and the Nasdaq rose only 0.04%. This indicates that even though market expectations for the Fed's interest rate hike path have eased somewhat, the stock market remains highly dependent on the performance of the US Treasury market. On Thursday, news that the US was deploying additional military forces to the Middle East pushed up oil prices; meanwhile, the price paid component of the US ISM Manufacturing PMI surged to 77.9. These factors have led stock traders to question whether the Fed will skip the October rate hike. This puts pressure on growth stocks and long-duration technology stocks, although Micron Technology's better-than-expected earnings report and guidance provided support for the semiconductor sector. If tonight's non-farm payroll data is strong, the market will expect higher borrowing costs, which will lower the present value of high-growth technology stocks, thus dragging down US stocks; conversely, if the non-farm payroll data falls short of expectations, US stocks are likely to benefit.
The previous strength of the US dollar was still driven by the continued sell-off in the bond market, which led to a rise in US Treasury yields. The 10-year Treasury yield reached 5.344%, the highest level since 2002. However, borrowing costs fell later in the day ahead of the crucial non-farm payroll report. Despite rising yields and a stronger dollar, market expectations for a Fed rate hike in October remained low, with a probability of about 25%. At the beginning of the week, market expectations for consecutive Fed rate hikes once reached as high as 70%, but New York Fed President John Williams said that it might be appropriate to raise rates again "later this year," and Fed Vice Chairman Philip Jefferson said that it "may take more time" to determine subsequent policy adjustments. These statements prompted investors to lower their Fed rate hike expectations. Currently, the market expects the next rate hike to fall in December; at the same time, the market has priced in a cumulative rate hike of 80 basis points by the end of 2027. This means that investors have not only postponed their expectation of an October rate hike to December, but have also eliminated an expectation of a 25 basis point rate hike. Will strong non-farm payroll data further boost the dollar? Against this backdrop, the September non-farm payroll data released today will be closely watched. The market expects September's non-farm payrolls to fall to 89,000 from 162,000 in August; the unemployment rate is expected to remain unchanged at 4.1%; and the year-on-year growth rate of average hourly earnings is expected to rise slightly from 3.1% to 3.2%. The S&P Global Purchasing Managers' Index (PMI) shows that September's job expansion rate hit a new high since June 2022, a rare occurrence since the index was first published in 2009. This suggests a risk that the non-farm payroll data may exceed expectations. Even if a strong non-farm payroll report does not significantly increase the probability of an October rate hike, it could still provide further impetus for the dollar's rise. Following Williams and Jefferson's speeches, investors still believe December is a more appropriate time for the next rate hike, but will revise their cumulative rate hike expectations up to the end of 2027. French fiscal concerns intensify, putting pressure on the euro. Euro/dollar traders are facing more than just US Treasury yields, expectations of a Fed rate hike, and the upcoming non-farm payroll report; French fiscal pressure has become a direct market risk weighing on the euro. The French government is drafting its 2027 budget, planning to save €54 billion, but the fragmented domestic political landscape makes its passage and implementation highly uncertain. Affected by these concerns, French bond yields have surged, widening the Franco-German bond spread to approximately 133 basis points, the highest level since the Eurozone crisis. The euro/dollar pair found support near the key level of $1.1205 and rebounded slightly; however, if tonight's US non-farm payroll data is strong, bears may push the exchange rate below this level, falling back to levels seen in May 2025. The next key support level is at the May 16 low of $1.1130. Ahead of the non-farm payroll data release, US stock market performance was constrained by US Treasury yields. The three major US stock indices all closed higher on the first trading day of the new quarter, but gains were limited: the S&P 500 rose 0.19%, and the Nasdaq rose only 0.04%. This indicates that even though market expectations for the Fed's interest rate hike path have eased somewhat, the stock market remains highly dependent on the performance of the US Treasury market. On Thursday, news that the US was deploying additional military forces to the Middle East pushed up oil prices; meanwhile, the price paid component of the US ISM Manufacturing PMI surged to 77.9. These factors have led stock traders to question whether the Fed will skip the October rate hike. This puts pressure on growth stocks and long-duration technology stocks, although Micron Technology's better-than-expected earnings report and guidance provided support for the semiconductor sector. If tonight's non-farm payroll data is strong, the market will expect higher borrowing costs, which will lower the present value of high-growth technology stocks, thus dragging down US stocks; conversely, if the non-farm payroll data falls short of expectations, US stocks are likely to benefit.
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