The US job market is set for another strong report

As investors cautiously await the release of the important US monthly jobs report, which may guide future Fed policy, European stock markets are expected to open slightly lower on Friday.

The August US jobs report is due out later today. It will be closely watched since it is one of the last pieces of economic data the Fed will see before raising rates again in September.

The release comes shortly after Fed Chair Jerome Powell warned of the need to tighten monetary policy even while unemployment rises, following the surge of 528,000 jobs in July. Nonfarm payrolls are expected to increase by 300,000 jobs last month.

It is unclear how much the US central bank will raise interest rates later this month. Nonetheless, an increase would mark the 20th consecutive month of job growth, indicating that the labour market is coping with the aggressive rate hikes already implemented.

Suppose we get another strong number in today's US payroll report. In that case, it could add yet another layer of strength to the US dollar narrative and equity market weakness.

One of the most notable highlights of US economic data this year has been the resilience of the US labour market. Over the last three payroll reports, the headline numbers have exceeded expectations, with wage growth remaining resilient, even as vacancy rates remain near record lows. There was no doubt that the July payroll report was impressive. This is especially given that general expectations were for the lowest number during the last year, and we received over twice what was expected.

There has also been a substantial rise in wages to 5.2%, as well as a decline in the unemployment rate to 3.5%. These numbers are expected to remain the same. The US Federal Reserve will likely raise interest rates by 75 basis points when it meets later this month if another positive payroll number comes in today.

Only the low level of labour participation hasn't been considered in the payrolls reports this year, reaching its lowest level in July at 62.1%. As we've started to see, there has been little evidence that the rising cost of living in the US has prompted early pandemic retirees to return to work.

In early European trade Friday, the US dollar edged lower in light of the experience over the past month and Jerome Powell's very hawkish speech last Friday. Still, it remained near a two-decade high ahead of the numbers because investors doubt even a modestly softer August jobs report will have an impact on Fed pricing.

In the wake of a survey showing manufacturing activity across the Eurozone declined again in the second half of last month, as well as the rising energy cost, the EUR/USD rose on Friday after falling below parity on Thursday.

The euro has gained some support ahead of next week's meeting of the ECB. It is widely expected that the European Central Bank will boost interest rates by a hefty 75 basis points next week following the release of the Eurozone Consumer Price Index for August, which set a new high for the month.