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Forex Today: No signs of US-Iran deal as focus shift to US employment data

Here is what you need to know on Friday, May 8:

Geopolitical tensions in the Middle East escalate once again, causing investors to cling to a cautious stance on Friday. In the second half of the day, the US economic calendar will feature the April employment report, which will include Nonfarm Payrolls (NFP), Unemployment Rate and wage inflation figures, alongside the University of Michigan's preliminary Consumer Sentiment Index for May.

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 strongest against the Canadian Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.02%0.08%0.06%0.47%-0.20%-0.93%-0.14%
EUR-0.02%0.04%0.02%0.45%-0.17%-0.96%-0.14%
GBP-0.08%-0.04%-0.02%0.42%-0.22%-1.00%-0.19%
JPY-0.06%-0.02%0.02%0.48%-0.21%-0.91%-0.21%
CAD-0.47%-0.45%-0.42%-0.48%-0.65%-1.37%-0.59%
AUD0.20%0.17%0.22%0.21%0.65%-0.78%0.04%
NZD0.93%0.96%1.00%0.91%1.37%0.78%0.82%
CHF0.14%0.14%0.19%0.21%0.59%-0.04%-0.82%

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).

Although US President Donald Trump told reporters that the ceasefire is still in place, the US' and Iranian military forces reportedly had exchanges in the Strait of Hormuz. The US Central Command said that they targeted Iranian military facilities that attacked warships transiting the strait, while a spokesperson for Iran's armed forces said the US attacked an Iranian oil tanker and another vessel in the strait, adding that the US strikes also hit civilian areas.

In the meantime, US President Trump repeated his warning, saying that they will "knock them out a lot harder, and a lot more violently, in the future, if they don't get their deal signed, fast!" Iran is yet to finalize its responds to the latest US proposal.

Following Wednesday's decline, the US Dollar (USD) Index gained 0.25% on Thursday before going into a consolidation phase, slightly above 98.00, early Friday. US stock index futures trade marginally higher after Wall Street's main indexes registered moderate losses on Thursday. Markets see the Unemployment Rate to remaining unchanged at 4.3% and project a 62K increase in NFP.

USD/CAD rose more than 0.2% on Thursday and closed the second consecutive day in positive territory. The pair fluctuates in a tight channel at around 1.3650 in the European morning on Friday. Statistics Canada will publish labor market data in the early American session .

EUR/USD holds its ground and trades marginally higher on the day, near 1.1750, after posting small losses on Thursday. Several European Central Bank (ECB) policymakers, including President Christine Lagarde, will be delivering speeches later in the day.

Citing a source familiar with the matter, Reuters reported on Friday that Japan’s officials intervened in the foreign exchange market during holidays in early May, after having conducted Japanese Yen-buying operations on April 30. After rising more than 0.3% on Thursday, USD/JPY stays relatively quiet early Friday and moves sideways above 156.50.

Gold reversed its direction and closed the day flat after touching its highest level in two weeks above $4,760 on Thursday. XAU/USD gains traction early Friday and rises about 0.8% on the day near $4,730.

GBP/USD edges higher toward 1.3600 in the European morning following Thursday's pullback.

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.

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