Forex Today: US Dollar continues to retreat ahead of key employment data
Here is what you need to know on Friday, March 7:
The US Dollar (USD) Index continues to edge lower on Friday and remains on track to post its largest weekly loss since November 2022. In the second half of the day, February employment data from the US, which will feature Nonfarm Payrolls, Unemployment Rate and wage inflation figures, will be watched closely by market participants.
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.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -4.16% | -2.50% | -1.98% | -0.99% | -1.62% | -2.13% | -2.41% | |
| EUR | 4.16% | 1.62% | 2.03% | 3.11% | 2.55% | 1.92% | 1.63% | |
| GBP | 2.50% | -1.62% | 0.51% | 1.47% | 0.91% | 0.30% | 0.02% | |
| JPY | 1.98% | -2.03% | -0.51% | 1.23% | 0.42% | -0.11% | -0.45% | |
| CAD | 0.99% | -3.11% | -1.47% | -1.23% | -0.48% | -1.15% | -1.44% | |
| AUD | 1.62% | -2.55% | -0.91% | -0.42% | 0.48% | -0.60% | -0.89% | |
| NZD | 2.13% | -1.92% | -0.30% | 0.11% | 1.15% | 0.60% | -0.29% | |
| CHF | 2.41% | -1.63% | -0.02% | 0.45% | 1.44% | 0.89% | 0.29% |
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).
After suffering heavy losses against its major rivals in the first half of the week, the USD continues to weaken, albeit at a softer pace. Markets expect Nonfarm Payrolls to rise by 160,000 in February, following the 143,000 increase recorded in January. Later in the American session, Federal Reserve (Fed) Chairman Jerome Powell, as well as some other policymakers, will be delivering speeches before the Fed's blackout period starts on Saturday. At the time of press, the USD Index was fluctuating in negative territory below 104.00, losing about 3.4% on a weekly basis.
During the Asian trading hours, the data from China showed Exports rose by 2.3% on a yearly basis in February, while Imports declined by 8.4% in the same period. In turn, China's trade surplus widened to $170.51 billion from $104.84 billion in January. AUD/USD stays on the back foot early Friday and trades near 0.6300.
The European Central Bank (ECB) announced on Thursday that it lowered key rates by 25 basis points (bps), as expected. In the policy statement, the ECB reiterated that future interest rate decisions will be based on the assessment of inflation outlook in light of incoming economic and financial data, dynamics of underlying inflation, and strength of monetary policy transmission. Commenting on the policy outlook, ECB President Christine Lagarde noted that the ECB will remain data-dependent and that they will make decisions on a meeting-by-meeting basis. EUR/USD closed marginally lower on Thursday but started to edge higher above 1.0800 early Friday. Meanwhile, the data from Germany showed that Factory Orders contracted by 7% on a monthly basis in January.
Statistics Canada will publish February jobs data later in the day. Investors expect the Unemployment Rate to tick up to 6.7% from 6.6% in January. After posting losses for three consecutive days, USD/CAD stays in a consolidation phase at around 1.4300 in the European morning on Friday.
GBP/USD fluctuates in a tight channel at around 1.2900 on Friday after setting a multi-month above 1.2920 on Thursday.
USD/JPY stays under bearish pressure on Friday and declined toward 147.50. Japan's Finance Minister, Katsunobu Kato, said early Friday that there have been one-sided and rapid market moves, adding that he will take appropriate action against excessive foreign exchange moves.
After reclaiming $2,900 earlier in the week, Gold struggled to preserve its bullish momentum and registered small losses on Thursday. In the European morning on Friday, XAU/USD moves sideways at around $2,910.
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.
