Forex Analysis & Reviews: 02.05.2025 - U.S. Labor Market Data Could...

02.05.2025 10:08 AM

U.S. Labor Market Data Could Be a Major Disappointment

Employment growth in the U.S. likely slowed in April, although the unemployment rate is expected to remain unchanged, pointing to healthy but moderate demand for labor. However, the Trump administration's new trade policy risks causing significant damage to the labor market. This will be the first report to begin reflecting the effects of new trade restrictions introduced earlier last month.

Nonfarm payrolls are expected to increase by 138,000 in April, following a weaker-than-expected result in March. Unemployment is projected to remain at 4.2%.

As mentioned above, the data to be released by the Department of Labor will be the first since the Trump administration imposed extensive tariffs. The surveys underlying the report were conducted during the second week of April, when Trump both suspended some tariffs and sharply increased others on Chinese goods, creating heightened uncertainty among both large and small businesses.

Immigration and trade restrictions are also likely to place additional pressure on payrolls in the coming months, though many economists do not expect a significant impact on the April report. Additionally, seasonal factors tend to be more favorable in April than in other months, especially as the services sector begins hiring for the busy summer season.

The labor market is expected to start deteriorating more noticeably in May. The May employment report, due June 6, could show a sharper slowdown in hiring in logistics, leisure, and hospitality sectors.

Economists generally expect the unemployment rate to remain historically low at 4.2% in April. This is partly because, having overcome widespread labor shortages following the pandemic, companies may choose to retain workers by cutting other costs. Furthermore, the sharp drop in immigration since last summer means fewer people are entering the workforce, which could restrain the rise in unemployment even as labor demand weakens.

"We still believe the direction of the unemployment rate will be sideways in the medium term, with the sharp slowdown in immigration gradually putting pressure on labor supply," economists at Barclays Plc wrote in a note. "However, we believe this effect will be offset in the coming quarters by a slowdown in labor demand due to escalating tariffs and increased political uncertainty."

Economists at Citigroup Inc. share this view, expecting job growth to fall below the consensus at around 105,000.

The Federal Reserve will be closely watching labor market developments, as concerns grow that tariffs could push prices higher. Policymakers are expected to leave rates unchanged at their two-day meeting in Washington next week.

EUR/USD Technical Outlook

Currently, buyers need to focus on reclaiming the 1.1337 level. Only then will a test of 1.1386 become feasible. From there, the pair could move toward 1.1437, although reaching that level without support from major market participants will be challenging. The furthest target remains the high at 1.1487. If the instrument declines, I expect significant buying interest only around 1.1265. If that level fails to hold, a retest of the 1.1215 low or long positions from 1.1185 may be considered.

GBP/USD Technical Outlook

Pound buyers need to break through the nearest resistance at 1.3315. Only then can they target 1.3354, which will be difficult to surpass. The furthest upside target would be around 1.3394. In case of a decline, bears will attempt to regain control over the 1.3280 level. A successful breakout of this range would deal a significant blow to bulls and push GBP/USD toward a low of 1.3250, with the potential to reach 1.3205.

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