What the disappointing NFP report really means for the USD [Video]

The Nonfarm Payroll (NFP report) is making a habit of missing its forecast by wide margins. September's NFP rolled on Friday, revealing that a meagre 194K jobs had been added to the US economy last month (TE, 2021). Perhaps the NFP report wouldn't have been as disappointing had forecasts not predicted September added 500K jobs for the month.

Job growth held to expectations within the leisure, hospitality, and retail sectors, adding a combined 130K jobs to the economy (TE, 2021). However, a steep decline in education and healthcare professionals across the US severely undermined predictions, down by 161K and 18K, respectively (TE, 2021).

Why NFP matters to the Federal Reserve

According to Federal Reserve Chair Jerome Powell, a "decent" September NFP would be needed for the Fed's planned bond-buying slowdown (tapering) to remain on track for November (Reuters, 2021). Without Powell's definition of "decent" or a stated value that meets that definition, the market might have to scramble to figure out what the September NFP will mean for the Fed's tapering roadmap.

As it stands, the DXY is struggling to maintain momentum above the 94.00 level. A reversal or delay in the Fed tapering may expose further weakness in the USD.

USD Video breakdown

After the NFP; Economic Calendar Concerning the USD

The markets will have a couple of days to decipher what the Fed might do in response to the lacklustre NFP. Helping the deciphering process will be the release of the FOMC minutes on Wednesday, followed by several speeches from Fed representatives. Perhaps the most important of these will be from Lael Brainard on Wednesday and John Williams on Friday.

Three additional economic reports will help determine the trajectory the USD takes this week.

On Wednesday, expect data concerning the rate of inflation in the US (YoY) (SEP). Inflation in the US is forecast to remain stable at 5.3% (TE, 2021).

Used vehicles, one of the main culprits for the high inflation in 2021, has begun to subside in price. Supply constraints across multiple industries may be picking up this slack and slowing the pace at which inflation drops. 

Alternatively, supply constraints could pick up more than just the slack left by falling used vehicles, and with it, push inflation back in line or beyond the pandemic record of 5.4%.

San Francisco Federal Reverse President Mary Daly commented over the weekend pushing back against the idea that inflation is here to stay, throwing inflation's new instigator, 'supply constraints', under the bus. Daly noted, "We have these really anxious-to-get-out-there-and-spend consumers hitting the wall of supply constraints, and of course the prices are going to rise…But I don't see this as a long-term phenomenon." (Reuters, 2021)

On Friday, expect back-to-back reports. First, US Retail Sales MoM SEP is forecast to remain flat, followed quickly by the Michigan Consumer Sentiment OCT, which is expected to rise by one point or two from 72.8 in September (TE, 2021).