Nonfarm Payrolls Preview: Why the dollar could surge in (almost) any scenario

  • Upbeat Employment components in PMIs point to robust hiring in July. 
  • The weak ADP figures set a lower bar for Nonfarm Payrolls. 
  • Hawkish comments from Fed Vice-Chair Clarida have raised tensions.

Less than half of the early expectations – that is what ADP's private-sector jobs report has pointed to in July. With only 330,000 new positions against 695,000 projected, investors have taken notice and decreased their projections for the official Nonfarm Payrolls due out on Friday. However, ADP may be wrong.

Nonfarm Payrolls expectations

Since the outbreak of the COVID-19 crisis, the correlation between statistics published by America's largest payrolls company and official figures have been loose. In June, ADP came out with 692K and the NFP came out at 850K – a significant undershoot. In May, the firm reported a blockbuster 978K level while government statistics came out with only 559K, un undershoot. 

Is ADP pointing to low once again like in June? That will be known only on Friday, but other indicators are more upbeat. The ISM Manufacturing Purchasing Managers' Index's Employment Component rose from 49.9 to 52.9 points in July, reflecting a shift from contraction to expansion. Any figure above 50 is positive. 

The ISM Services PMI – which represents a much larger sector – showed an even larger increase, with the Employment component leaping from 49.3 to 53.8 points. These well-established and forward-looking business surveys better reflect trends in hiring

Services sector hiring expanding again:

Source: FXStreet

The economic calendar is pointing to an increase of 880,000 positions in Friday's official Nonfarm Payrolls report for July. As described above, real estimates are probably lower after the ADP report. That means that even a small miss – perhaps as low as 750,000 – would be considered a beat of estimates. 

While these differences look significant, it is essential to remember that the rapid recovery from the worst of the pandemic has been jittery and full of considerable surprises in economic indicators. 

Here are the figures from the past six months, reflecting significant deviations: 

Source: FXStreet

Market positioning

The hottest topic for financial markets is the timing of the Federal Reserve's tapering of its bond-buying scheme. The sooner the bank reduces purchases, the sooner a rate hike comes. After a relatively soothing message from Fed Chair Jerome Powell in the latest rate decision, Vice-Chair Richard Clarida caused some jitters in markets.

He said inflation risks are to the upside, foresaw strong job gains, and set an Unemployment Rate of 3.8% as a trigger to act – regardless of the participation rate. It seems that the Fed is nearing the stage when employment is strong enough to move.

Even if the NFP headline falls short of a robust figure, markets are already more nervous and risk-averse – a mood that favors the US dollar. Under these circumstances, a devastating statistic would also underpin the greenback. An ADP-style increase of less than 400,000 jobs would mean the US economy is slowing sharply and could drag the world down, triggering flows into the safe-haven dollar. 

Overall, the greenback has room to fall only if the increase in jobs is considerably below estimates, but not catastrophic


July's Nonfarm Payrolls now carries lower expectations than originally seen after the ADP report, lowering the bar for a beat. Given the jittery market mood, it would not take much to see the dollar gain under almost any scenario.

More Inflation, the chip shortage and Delta are peaking, what it means for markets and the dollar

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.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD: Bulls step in at month-end, eyeing the upside

EUR/USD is set to close off a bearish week towards a test of 1.11 the figure after breaking out of the bearish weekly wedge to the downside. Bulls have an eye on the weekly M-formation and prospects of a significant correction. 


GBP/USD slumps toward 1.3350, renews five-week lows

GBP/USD stays under constant bearish pressure on Thursday and trades at its lowest level since late December below 1.3370. Following the upbeat growth data from the US, the US Dollar Index is rising more than 0.7% on the day above 97.00. 


Gold poised to challenge January’s low at 1,782.60

Gold is sharply down for a second consecutive day, trading around $1,793.00. XAU/USD shed roughly $50 following a hawkish Fed monetary policy announcement, as the US central bank hinted at a rate hike in March when it is also set to end its pandemic-related financial support.

Gold News

Bitcoin struggles against resistance as bulls keep their eye on $40,000

Bitcoin price action faced intense selling pressure after the Fed’s decision, with Bitcoin losing more than 5% from its Wednesday high. If the sell-off from the top wasn’t discouraging enough for bulls, then the daily close in the red certainly added insult to injury.

Read more

Apple (AAPL) Earnings for Q1 beats estimates on EPS and revenue

Apple (AAPL) reported earnings after the close on Thursday. Earnings per share (EPS) came in at $2.10 versus the estimate of $1.89. Revenue was $123.9 billion versus the estimate for $118.66 billion. AAPL is trading at $162.40 in Thursday's aftermarket, a change of 2% versus the regular session close of $159.16.

Read more