Forex Today: US Dollar rises on easing Fed rate cut bets, focus shifts to NFP
Here is what you need to know on Thursday, November 20:
The US Dollar (USD) outperformed its rivals midweek as the minutes of the Federal Reserve's (Fed) October policy meeting fed into expectations of a policy hold in December. The USD holds its ground early Thursday as investors await the September employment report, which will feature Nonfarm Payrolls and Unemployment Rate 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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.90% | 0.76% | 1.97% | 0.24% | 0.85% | 1.19% | 1.55% | |
| EUR | -0.90% | -0.04% | 1.42% | -0.64% | -0.06% | 0.31% | 0.66% | |
| GBP | -0.76% | 0.04% | 1.19% | -0.61% | -0.02% | 0.34% | 0.70% | |
| JPY | -1.97% | -1.42% | -1.19% | -1.70% | -1.09% | -0.77% | -0.45% | |
| CAD | -0.24% | 0.64% | 0.61% | 1.70% | 0.62% | 0.96% | 1.31% | |
| AUD | -0.85% | 0.06% | 0.02% | 1.09% | -0.62% | 0.37% | 0.70% | |
| NZD | -1.19% | -0.31% | -0.34% | 0.77% | -0.96% | -0.37% | 0.36% | |
| CHF | -1.55% | -0.66% | -0.70% | 0.45% | -1.31% | -0.70% | -0.36% |
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 Fed said in its October minutes that many policymakers thought that, under their outlooks, it would be appropriate to keep rates unchanged for the rest of the year. "Most participants noted further rate cuts could add to the risk of higher inflation becoming entrenched or could be misinterpreted as a lack of commitment to the 2% inflation objective," the publication read. The USD Index gathered bullish momentum in the late American session and climbed to a two-week-high above 100.00. Early Thursday, the USD Index clings to modest gains near 100.30.
In the meantime, US stock index futures rise sharply in the European morning as investors cheer Nvidia's earning report, which showed better-than-expected revenue for the third quarter and stronger-than-estimated sales forecasts for the fourth quarter. At the time of press, Nasdaq Futures were up nearly 2% on the day.
EUR/USD lost nearly 0.4% on Wednesday and closed the fourth consecutive day in negative territory. The pair stays on the back foot early Thursday and declines toward 1.1500.
GBP/USD declined sharply on Wednesday and closed below 1.3100 for the first time since early November. The pair struggles to stage a rebound in the European morning on Thursday and fluctuates in a narrow range, slightly above 1.3050.
USD/JPY's bullish rally gathered momentum in the American session on Wednesday and continued in the Asian session on Thursday. The pair was last seen trading at its highest level since mid-January above 157.50, gaining about 2% on a weekly basis. Japanese Chief Cabinet Secretary Minoru Kihara said in a statement on Thursday that he is watching FX market moves with a high sense of urgency.
After climbing above $4,100 early Wednesday, Gold reversed its direction in the second half of the day and erased a large portion of its gains. XAU/USD edges lower in the European morning on Thursday and trades slightly above $4,050.
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.
