Forex Today: US Dollar holds steady ahead of this week's last big event, Nonfarm Payrolls
Here is what you need to know on Friday, August 2:
After falling sharply during the Federal Reserve (Fed) event on Wednesday, the US Dollar (USD) staged a rebound but struggled to gather bullish momentum following disappointing US data. The US Bureau of Labor Statistics will release July jobs report on Friday, which will feature Nonfarm Payrolls (NFP), 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 strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.58% | 1.25% | -3.08% | 0.25% | 0.58% | -1.00% | -1.33% | |
| EUR | -0.58% | 0.63% | -3.60% | -0.31% | 0.04% | -1.59% | -1.90% | |
| GBP | -1.25% | -0.63% | -4.24% | -0.96% | -0.59% | -2.20% | -2.50% | |
| JPY | 3.08% | 3.60% | 4.24% | 3.38% | 3.78% | 2.11% | 1.81% | |
| CAD | -0.25% | 0.31% | 0.96% | -3.38% | 0.36% | -1.28% | -1.56% | |
| AUD | -0.58% | -0.04% | 0.59% | -3.78% | -0.36% | -1.60% | -1.96% | |
| NZD | 1.00% | 1.59% | 2.20% | -2.11% | 1.28% | 1.60% | -0.31% | |
| CHF | 1.33% | 1.90% | 2.50% | -1.81% | 1.56% | 1.96% | 0.31% |
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 Bank of England (BoE) announced on Thursday that it lowered the policy rate by 25 basis points (bps) to 5%. In the post-meeting press conference, BoE Governor Andrew Bailey adopted a cautious tone and refrained from confirming additional policy easing, helping Pound Sterling limit its losses. Early Friday, GBP/USD stays under modest bearish pressure and declines toward 1.2700.
The data from the US showed on Thursday that weekly Initial Jobless Claims rose to 249,000 in the week ending July 27 from 235,000 in the previous week. Meanwhile, the ISM Manufacturing PMI dropped to 46.8 in July from 48.5 in June, pointing to an ongoing contraction at an accelerating pace in the manufacturing sector's business activity. The Unemployment Rate is forecast to stay unchanged at 4.1% in July and NFP is seen rising 175,000 following the 206,000 increase recorded in June. The annual wage inflation, as measured by the change in the Average Hourly Earnings, is expected to declined to 3.7% from 3.9%. Ahead of the labor market data, the US Dollar (USD) Index holds steady above 104.00, while the benchmark 10-year US Treasury bond yield continues to push lower after breaking below 4% on Thursday.
Following a short-lasting recovery attempt in the early Asian session, USD/JPY turned south and declined below 149.00. The Japanese Yen seems to be benefiting from the Bank of Japan's unexpected decision to hike the policy rate earlier in the week. In the meantime, Japan's Nikkei 225 Index is down nearly 6% on the day.
EUR/USD failed to build on Wednesday's recovery gains and dropped to multi-week lows below 1.0800 on Thursday. The pair stays in a consolidation phase at around 1.0790 in the European morning on Friday.
Gold closed little changed on Thursday but managed to gather bullish momentum during the Asian trading hours on Friday. At the time of press, XAU/USD was up more than 0.5% on the day, trading slightly above $2,460.
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.
