- US Nonfarm Payrolls are set to rise by 200K in February after January’s stellar 353K gain.
- The United States Bureau of Labor Statistics will release the labor market data at 13:30 GMT.
- Robust employment data could provide some relief to US Dollar buyers.
The all-important Nonfarm Payrolls (NFP) data from the United States (US) is slated for release on Friday at 13:30 GMT. The US labor market data, published by the Bureau of Labor Statistics (BLS), could significantly impact the market’s pricing of when the Federal Reserve (Fed) will start lowering interest rates, eventually influencing the US Dollar’s value.
What to expect in the next Nonfarm Payrolls report?
The Nonfarm Payrolls report is likely to show a jobs addition of 200,000 to the US economy last month, down from January’s whopping 353,000 job gain. The Unemployment Rate is expected to stay unchanged at 3.7% in the reported period. A closely watched measure of wage inflation, Average Hourly Earnings, is set to rise 4.4% in the year through February, a tad slower than the 4.5% increase registered in January.
Market participants will closely scrutinize the headline NFP print and the wage inflation data to determine the timing and the scope of the Fed interest rate cut this year, especially after Fed Chair Jerome Powell delivered less hawkish comments during his testimony on the semi-annual Monetary Policy Report (MPR) before the House Financial Services Committee on Wednesday.
Powell said that interest rate cuts are still likely in the coming months if Fed officials are more confident that there is further evidence of falling inflation. Markets are currently pricing in about a 75% chance that the Fed could begin lowering rates in June, higher than the 63% probability seen a day earlier, according to the CME Group’s FedWatch Tool.
Previewing February’s jobs report, TD Securities (TDS) analysts said: “We look for February payrolls to show some moderation in job gains after January’s meaningful upside surprise.”
“The upshot is that we are looking for mixed signals from the February data, with a report that will likely point to a still-tight labor market that’s yet to act as an obstacle for a normalization in wage growth,” the TDS analysts added.
Meanwhile, the US private sector added 140,000 jobs in February, an increase from the upwardly revised 111,000 increase in January while a tad below the expected 150,000 addition, ADP reported on Wednesday. The number of job openings on the last business day of January stood at 8.86 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS). The data also came in slightly below the market forecast of 8.9 million.
How will US February Nonfarm Payrolls affect EUR/USD?
Loosening US labor market conditions and Powell’s comments smashed the US Dollar to fresh one-month lows across its major counterparts, lifting the EUR/USD pair to a six-week high above 1.0900. Will the US jobs report help the EUR/USD gain further upside traction?
An encouraging NFP headline figure alongside hotter-than-expected wage inflation data could diminish bets for a June Fed rate cut, providing the much-needed relief to the US Dollar at the expense of the Euro. On the other hand, disappointing data could add to the downward pressure on the US Dollar while boosting EUR/USD.
Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“The EUR/USD pair broke through the critical 50-day Simple Moving Average (SMA) at 1.0857 on Wednesday, opening the door for further upside. The 14-day Relative Strength Index (RSI) sits just beneath the overbought territory, suggesting that there is more room for the upside.”
“Acceptance above the 1.1000 level is likely to refuel the rally toward the 1.1050 psychological level. EUR buyers will then aim for the December 2023 high of 1.1140. Conversely, the initial demand area is seen at the 1.0900 round figure, below which the 50-day SMA at 1.0856 will be tested. The next support is seen near 1.0835, where the 100- and 200-day SMAs hang around. Further south, the 21-day SMA at 1.0821 could come to the rescue of EUR/USD,” Dhwani adds.
Economic Indicator
United States Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the Unemployment Rate are as relevant as the headline figure. The market’s reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.