NFP Quick Analysis: Solid data means only Trump can stop the USD rally


  • The US Non-Farm Payrolls came out at 164K, within expectations.
  • The upbeat data, especially on wages, means the Fed may pause in September.
  • Trump's new tariffs can change the picture for the bank and the dollar.

It is rare to see the Non-Farm Payrolls meeting expectations – 164K against the same number expected. Wages have risen by 0.3%, above 0.2% projected, and 3.2% year on year – bang on expectations. 

While downward revisions knocked down some 32K of job gains from previous reports, other figures are encuraging. The unemployment rate remained at a low level of 3.7% while the participation rate advanced from 62.9% to 63%. The broader picture is even more upbeat – the U-6 underemployment rate fell from 7.2% to 7%. The gauge counts part-time workers who want a full-time position and people too discouraged to search for a job. 

All in all, the report met expectations – which were solid – and has more positives than negatives in the second-tier components.

The US dollar is rising despite the distractions from this week's other substantial events. 

Earlier this week, the Federal Reserve cut interest rates as expected but signaled that this monetary stimulus is only an "insurance move" – not the beginning of a cycle of back-to-back rate reductions. Moreover, the Fed maintained its view that the "labor market remains strong"

The report vindicates this upbeat assessment. An increase of 164K positions is more than satisfactory and points to ongoing expansion.

In addition, two members voted to leave rates unchanged. Markets had expected more, and the disappointment sent the dollar higher. 

So why did the Fed cut rates? Its original signal about reversing the latest rate hike from December 2018 came in response to lower inflation and trade tensions which mounted in May.

Earnings data in this report remains upbeat – insufficient to justify raising rates – but still reflecting real wage growth, which is likely to prevent inflation from falling. It is important to remember that annual wage growth of 3% or higher is above the averages of around 2.5% that characterized Average Hourly Earnings for years.

The dollar now depends on Donald Trump

So only trade remains an issue. President Donald Trump has shocked markets by announcing a 10% duty on around $300 billion of imported Chinese goods – the remainder of products that have been spared tariffs so far.

The move came after the US delegation returned from trade talks in Shanghai, and Trump concluded that China is moving too slowly and that it has broken its promise to buy US agricultural goods.

However, some traders suspect that the timing of Trump's tariff tweets – less than 24 hours after Powell said "trade" around 24 times – is meant to force the Fed to cut rates. 

And markets have already adapted to the new reality. Equities have suffered a sell-off and money fled into the safety of Treasuries. The resulting fall in yields now reflects a high chance of a rate cut in the Fed's next meeting due on September 18th. 

After these upbeat jobs figures, it is becoming clear that only Trump's trade wars can force the Fed to cut rates – only they can stop the dollar rally. 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD holding onto gains amid trade wars, ahead of German IFO

EUR/USD is trading around 1.1150, consolidating its gains after the escalation in US-Sino trade wars sent US yields and the greenback lower. German IFO Business Climate is next.

EUR/USD News

GBP/USD consolidates amid Brexit uncertainty

GBP/USD is trading below 1.2300, consolidating its gains. The UK and the EU have been blaming each other for a potential no-deal Brexit. US-Sino tensions are in play as well.

GBP/USD News

USD/JPY recovers farther from multi-year lows on Trump’s positive trade-related comments

The incoming positive trade-related comments dented the JPY’s safe-haven demand. Improving global risk sentiment helped the pair to recover around 150-pips intraday. Investors now look forward to the US durable goods orders data for a fresh impetus.

USD/JPY News

Forex Today: Trade wars paint markets in red, Brexit looks worse, and central banks are limited

Here is what you need to know on Monday, August 26th: The US-Sino trade war is painting global markets in the red. The US dollar is losing some ground to major currencies as yields plunge, while it gains against commodity currencies. Gold is rising and oil is falling.

Read more

Gold: Risk-off rally stalls after US, China aim to calm trade war fears

Having surged to the fresh high since April 2013, Gold declines to the intra-day low of $1,538.50, before taking rounds to $1541.60, by the press time of early Monday. China shows readiness to have a calm discussion with the US.

Gold News

Majors

Cryptocurrencies

Signatures