Forex Today: August jobs report from the US to ramp up volatility
Here is what you need to know on Friday, September 6:
Following a two-day selloff, the US Dollar (USD) struggles to find demand in the European session on Friday. Eurostat will release revisions to second quarter Employment Change and Gross Domestic product data later in the session. More importantly, the US Bureau of Labor Statistics will publish the August jobs report, which will include Nonfarm Payrolls, Unemployment Rate and wage inflation figures.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.61% | -0.42% | -2.63% | 0.07% | 0.51% | 0.32% | -0.96% | |
| EUR | 0.61% | 0.21% | -2.04% | 0.65% | 1.12% | 0.92% | -0.39% | |
| GBP | 0.42% | -0.21% | -2.27% | 0.43% | 0.89% | 0.73% | -0.62% | |
| JPY | 2.63% | 2.04% | 2.27% | 2.72% | 3.25% | 3.16% | 1.63% | |
| CAD | -0.07% | -0.65% | -0.43% | -2.72% | 0.48% | 0.25% | -1.04% | |
| AUD | -0.51% | -1.12% | -0.89% | -3.25% | -0.48% | -0.21% | -1.49% | |
| NZD | -0.32% | -0.92% | -0.73% | -3.16% | -0.25% | 0.21% | -1.29% | |
| CHF | 0.96% | 0.39% | 0.62% | -1.63% | 1.04% | 1.49% | 1.29% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The USD Index extended its slide and closed in negative territory for the second consecutive day on Thursday, pressured by the disappointing ADP Employment Change data. In August, payrolls in the private sector rose by 99,000, missing the market expectation of 145,000 by a wide margin. Early Friday, the USD Index trades marginally lower on the day below 101.00. In the meantime, the benchmark 10-year US Treasury bond yield continues to push lower and loses nearly 1% on the day slightly below 3.7%, while US stock index futures lose between 0.2% and 0.8%. Investors expect Nonfarm Payrolls to rise 140,000 following the disappointing 114,000 increase recorded in July.
After rising sharply toward 1.3600 earlier in the week, USD/CAD reversed its direction and erased its gains in the second half of the week. Early Friday, the pair holds steady at around 1.3500. Statistics Canada will publish labor market data for August later in the day.
The data from Germany showed on Friday that Industrial Production contracted by 2.4% on a monthly basis in July. EUR/USD showed no reaction to this figure and was last seen trading above 1.1100.
GBP/USD holds its ground and edges higher toward 1.3200 early Friday after ending the previous two days in positive territory.
USD/JPY registered small losses on Thursday but came under renewed bearish pressure during the Asian trading hours on Friday. At the time of press, the pair was trading at 142.30, losing 0.8% on the day.
Following the bearish action seen in the first half of the week, Gold gathered bullish momentum and reclaimed $2,500. XAU/USD consolidates its gains at around $2,520.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
