USD weakens as US employment costs miss Q3 estimates at 0.8% vs 0.9%

The US Dollar Index has softened following the release of Q3 Employment Cost Index data showing a 0.8% quarterly increase, below the 0.9% consensus forecast. This miss suggests moderating wage pressures that could influence Federal Reserve policy decisions. Year-over-year compensation growth remained steady at 3.5% for both civilian and private-sector workers, with private wages specifically rising 3.6%. The data indicates inflation pressures from labor costs are cooling, as real wages improved only modestly by 0.6% annually. State and local government compensation increased 3.6% yearly, driven by a 3.8% rise in benefits. For forex traders, the weaker-than-expected wage growth reinforces expectations of a potential Fed pause or slower pace of rate adjustments in 2025. Major USD pairs are likely to see increased volatility as markets reassess the dollar's yield advantage, with EUR/USD and GBP/USD potentially testing recent resistance levels if dollar weakness persists.