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. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Forex Analysis

Editors’ Picks

EUR/USD surges above 1.13 after ECB's stimulus boost

EUR/USD is trading above 1.13, the highest since mid-March. The ECB added €600 billion in fresh stimulus, more than expected. The bank's move joins German stimulus and hopes for a recovery. 


GBP/USD avances toward 1.26 amid improving mood

GBP/USD trades closer to 1.26, buoyed by USD dollar weakness stemming from a better market mood. US jobless claims have marginally disappointed yet other US figures are more upbeat. Markets are shrugging off concerns about a no-trade-deal Brexit.


Will race relations rock markets? election campaign, coronavirus, crippled economy all in the mix

America is divided by demonstrations against racial discrimination that come on the backdrop of the coronavirus epidemic and attempts for a recovery. Will this or something else eventually affect markets? Valeria Bednarik, Joseph Trevisani, and Yohay Elam have a lively discussion about all these topics.

Read more

Gold recovers further from 1-month lows, moves back above $1715 level

Gold added to its intraday gains and refreshed daily tops, around the $1718 region during the early North American session.

Gold News

WTI: Recovery remains capped below $37 mark amid OPEC+ uncertainty

WTI (July futures on Nymex) is ranging in the familiar trading band near mid-36s so far this Thursday, having failed yet another upside attempts just shy of the 37 mark.

Oil News

Forex Majors