Non-Farm Payrolls: Greenback comeback or cementing a second double Fed cut? Three scenarios


  • Economists expect a gain of 175,000 jobs in February after a leap in January. 
  • Non-Farm Payrolls will likely impact the Fed's next rate decision.
  • The figures are set to provide a strong finish to a turbulent week dominated by the coronavirus outbreak.

The "king of forex indicators" is competing for market impact with something else that resembles a crown – the coronavirus. Nevertheless, the Non-Farm Payrolls report – like the disease – both effect the Federal Reserve and the dollar.

Upbeat US jobs situation

America is hiring at a satisfactory pace. In January, the world's largest economy gained 225,000 jobs – better than expected and an impressive increase also in absolute. Despite a few hiccups, the labor market has been robust in recent years.

Non Farm Payrolls mid 2019 to early 2020

The Federal Reserve cut rates three times in 2019 due to low inflation and trade concerns – not the pace of hiring nor wages. Salaries have been rising around 3% yearly, above the averages of previous years. 

While the uptrend is clear to see in the chart below, inflation remains tame. Nevertheless, such levels support higher prices down the line or at least do not warrant rate cuts. 

US Average Hourly Earnings 2011 to 2020

The economic calendar is showing that markets expected an increase of 175,000 jobs and for wage growth to decelerate from 3.1% to 3% modestly. 

The ADP private-sector jobs report and the employment component of the ISM Non-Manufacturing Purchasing Managers' Index were both satisfactory, meaning market estimates have likely remained unchanged. 

Focus on the Fed

The Federal Reserve slashed interest rates by 50 basis points – double the standard move – and in an unscheduled event. The emergency move came just three days ahead of NFP release, and with the focus being on the virus, the jobs report may seem secondary. 

However, investors are already looking toward the scheduled Fed meeting on March 18 – just 12 days after the Non-Farm Payrolls release. At the time of writing, markets are fully pricing a reduction of 25 basis points and around 70% of a 50bp cut. 

The employment data has, therefore, the power to shift expectations between 25 to 50 points – and that makes a difference for the dollar.

Three scenarios

1) As expected: If the headline figure is somewhere between 150,000 to 200,00 and wages between 2.9% to 3.1%, speculation could continue. Investors are likely to extend existing trends and return to focusing on coronavirus headlines.

2) Worse than expected: A disappointing increase of fewer than 150,000 positions or a slowdown in earnings to 2.8% or below could send the dollar down as markets would begin pricing a double-dose rate cut. The Fed would have another justification to slash borrowing costs. The greenback and gold could fall in such a scenario.

3) Better than expected: Another blockbuster jump in jobs – above 200,000 – or wage growth at 3.2% yearly or higher could trigger a dollar and gold rally. The central bank could consider keeping its powder dry and settling for only one rate cut later this month. 

Conclusion

While the world is focused on coronavirus headlines, the Non-Farm Payrolls will likely make a difference for the Fed – the difference between a minimal 25bp rate cut another double-dose 50bp one. The dollar, gold, and other assets have room to rock.

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. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

USD/JPY drops toward 142.00 ahead of BoJ policy decision

USD/JPY drops toward 142.00 ahead of BoJ policy decision

USD/JPY has turned south, approaching 142.00 in the Asian session on Friday. Markets turn risk-averse and flock to the safety in the Japanese Yen while the Fed-BoJ policy divergence and hot Japan's CPI data also support the Yen ahead of the BoJ policy verdict. 

USD/JPY News
AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD bears attack 0.6800 amid PBOC's status-quo, cautious mood

AUD/USD attacks 0.6800 in Friday's Asian trading, extending its gradual retreat after the PBOC unexpectedly left mortgage lending rates unchanged in September. A cautious market mood also adds to the weight on the Aussie. Fedspeak eyed. 

AUD/USD News
Gold price treads water below record peak, awaits Fedspeak

Gold price treads water below record peak, awaits Fedspeak

Gold price hovers below the all-time peak touched earlier this week amid a bearish US Dollar and rising bets for more upcoming rate cuts by the Fed. Concerns over an economic downturn in China keep the safe-haven Gold price afloat. Fedspeak remains on tap. 

Gold News
Bank of Japan set to keep rates on hold after July’s hike shocked markets

Bank of Japan set to keep rates on hold after July’s hike shocked markets

The Bank of Japan is expected to keep its short-term interest rate target between 0.15% and 0.25% on Friday, following the conclusion of its two-day monetary policy review. The decision is set to be announced during the early Asian session. 

Read more
XRP eyes gains as Ripple gears up for stablecoin launch, Grayscale XRP Trust notes rising NAV

XRP eyes gains as Ripple gears up for stablecoin launch, Grayscale XRP Trust notes rising NAV

Ripple (XRP) gained 2.3% since the start of the week. The altcoin’s gains are likely powered by key market movers that include Ripple USD (RUSD) stablecoin, Grayscale XRP Trust performance and the demand for the altcoin among institutional investors.

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures