Forex Today: Market focus shifts to critical US inflation and employment data

Here is what you need to know on Wednesday, September 30:

Major currency pairs stay relatively quiet on the last trading day of the third quarter but the market volatility could heighten in the second half of the day. The US economic calendar will feature the Automatic Data Processing's (ADP) private sector employment report for September and the Bureau of Economic Analysis will publish the final revision to second-quarter Gross Domestic Product (GDP) data, alongsinde Personal Consumption Expenditure (PCE) Price Index figures, the Federal Reserve's (Fed) preferred gauge of inflation, for August.

The data from the US showed on Tuesday that JOLTS Job Openings declined to 7.07 million in August from 7.33 million in July. This print came in below the market expectation of 7.23 million. In the meantime, the Conference Board reported that the Consumer Confidence Index declined to 81.9 in September from 88.6 in August. In this period, The Expectations Index, which is reflective of consumers’ short-term outlook for income, business, and labor market conditions, fell by 5.9 points to 63.6.

Although the US Dollar (USD) Index pulled away from the three-month high it set above 101.60 following the weak data releases, it still managed to close the day in positive territory, supported by hawkish comments from Fed officials.

Goolsbee warns on AI-driven overheating, keeps Fed firmly hawkish

Chicago Fed President Austan Goolsbee delivered a notably hawkish message late Tuesday, with a 7.1/10 FXS Speechtracker score, underscoring heightened concern about persistent inflation risks. The warning that expectations of future AI-driven productivity gains create a “high danger of overheating now,” combined with calls to revisit the logic of looking through supply shocks and highlighting massive deficits as stimulus, pointed to a Fed stance that is more inclined to lean against demand even as Goolsbee remained relatively optimistic in the dot plot. Emphasis on staying above target inflation for over five years, supply-side constraints such as refinery capacity, and the need for clear evidence that inflation is coming back down reinforced a bias toward keeping Dollar-supportive policy tighter for longer.

US Dollar outlook stays constructive but hinges on inflation drivers

Strategists at OCBC maintain that their “base case remains for a moderate USD rally into year-end,” but caution that current market expectations for the Fed may be running ahead of fundamentals. They note that “markets are currently pricing almost four Fed rate hikes over the next year, which appears overly aggressive unless demand-driven inflation re-emerges as the dominant force behind price pressures.” In their view, “wage growth and rental inflation will be critical indicators to watch” in assessing whether inflation dynamics justify the degree of tightening now embedded in the Dollar’s rate path.

During the Asian trading hours, the data from Australia showed that the annual inflation, as measured by the change in the Consumer Price Index (CPI), climbed to 4% in August from 3.5% in July, matching the market expectation. On a monthly basis, the Trimmed Mean CPI rose by 0.2%, coming in below analysts' estimate of 0.3%. After closing in the red on Tuesday, AUD/USD struggles to stage a rebound and trades below 0.7000.

EUR/USD clings to small recovery gains near 1.1350 in the European morning on Wednesday. Later in the session, markets will pay close attention to September CPI data from Germany.

After struggling to make a decisive move in either direction on Monday and Tuesday, USD/JPY loses its traction and trades near 156.70 early Wednesday, losing more than 0.3% on a daily basis.

GBP/USD rebounds following Tuesday's modest decline and trades at around 1.3270 in the European session. The UK's Office for Natioanl Statistics revised the annualized GDP growth for the second quarter to 1.4% from 1.2% in the initial estimate, helping Pound Sterling gain traction.

Following Monday's sharp decline, Gold staged a rebound and rose more than 1.5% on Tuesday. The precious metal extends its recovery eary Wednesday and trades near $4,200.