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Forex Today: Market attention turns to US October employment data

Here is what you need to know on Friday, November 1:

The US Dollar (USD) stays resilient against its rivals early Friday, with the USD Index holding steady near 104.00 following a three-day slide. The US Bureau of Labor Statistics will publish the labor market report for October, which will include Nonfarm Payrolls, Unemployment Rate and wage inflation figures. Later in the day, the US economic calendar will also feature ISM Manufacturing PMI data for October.

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 Euro.

 USDEURGBPJPYCADAUDNZDCHF
USD -0.72%0.52%-0.49%0.31%0.62%0.19%-0.46%
EUR0.72% 1.35%0.15%1.04%1.42%0.90%0.28%
GBP-0.52%-1.35% -0.35%-0.20%0.13%-0.36%-0.82%
JPY0.49%-0.15%0.35% 0.88%0.47%-0.07%-0.45%
CAD-0.31%-1.04%0.20%-0.88% 0.25%-0.21%-0.76%
AUD-0.62%-1.42%-0.13%-0.47%-0.25% -0.54%-1.11%
NZD-0.19%-0.90%0.36%0.07%0.21%0.54% -0.65%
CHF0.46%-0.28%0.82%0.45%0.76%1.11%0.65% 

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 struggled to find demand following mixed macroeconomic data releases on Thursday. The Initial Jobless Claims declined by 12,000 to 216,000 for the week ending October 26, while the Employment Cost Index rose by 0.8% in the third quarter, falling short of the market expectation of 0.9%. The risk-averse market atmosphere, however, helped the USD find a foothold later in the American session. In the European morning on Friday, US stock index futures trade in positive territory, pointing to an improving market mood. In October, Nonfarm Payrolls are forecast to rise by 113,000 following the impressive 254,000 increase recorded in September.

During the Asian trading hours on Friday, the data from China showed that the Caixin Manufacturing PMI rose to 50.3 in October from 49.3 in September. This reading came in better than the market expectation of 49.7. In the meantime, the Producer Price Index in Australia rose 0.9% on a quarterly basis in the third quarter, at a stronger pace than analysts' estimate of 0.7%. AUD/USD showed no reaction to these data releases and was last seen trading in the red, slightly above 0.6550.

USD/CHF lost about 0.4% on Thursday and touched its lowest level in two weeks near 0.8630. The pair recovers slightly in the European morning on Friday and trades at around 0.8650. October Consumer Price Index (CPI) data from Switzerland will be published during the European trading hours.

USD/JPY declined sharply on Thursday and dropped below 152.00, pressured by hawkish comments from Bank of Japan (BoJ) Governor Kazuo Ueda. The pair stages a rebound on Friday and trades above 152.50.

EUR/USD extended its recovery and closed the fourth consecutive day in positive territory on Thursday. The pair struggles to build on its weekly gains and fluctuates below 1.0900 in the European morning. 

GBP/USD failed to benefit from the persistent USD weakness and fell to its lowest level since mid-August below 1.2850 on Thursday. Although the pair managed to erase a small portion of its daily losses, it lost its traction after testing 1.2900. At the time of press, GBP/USD was moving up and down in a narrow band near 1.2890.

Gold made a deep correction from the record-high it set at $2,790 and lost more than 1.5% on Thursday. XAU/USD clings to small daily gains and trades above $2,750 to begin the European session.

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

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.

More from Eren Sengezer
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