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Forex Today: US Dollar under pressure ahead of critical jobs data

Here is what you need to know on Wednesday, February 11:

The US Dollar (USD) struggles to find demand midweek as investors gear up for critical data releases. The US economic calendar will feature January employment report, which will include Nonfarm Payrolls, Unemployment Rate and wage inflation figures. Several Federal Reserve (Fed) policymakers are scheduled to deliver speeches in the second half of the day.

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 Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD-0.87%-0.62%-2.85%-1.10%-1.41%-0.76%-1.49%
EUR0.87%0.26%-2.03%-0.23%-0.53%0.11%-0.63%
GBP0.62%-0.26%-1.99%-0.49%-0.79%-0.15%-0.88%
JPY2.85%2.03%1.99%1.83%1.51%2.19%1.32%
CAD1.10%0.23%0.49%-1.83%-0.21%0.35%-0.39%
AUD1.41%0.53%0.79%-1.51%0.21%0.65%-0.08%
NZD0.76%-0.11%0.15%-2.19%-0.35%-0.65%-0.73%
CHF1.49%0.63%0.88%-1.32%0.39%0.08%0.73%

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 staying resilient against its major rivals in the first half of the day on Tuesday, the USD came under bearish pressure in the American session. The benchmark 10-year US Treasury bond yield fell more than 1% and touched its lowest level since mid-January below 4.15%. The data from the US showed that Retail Sales remained unchanged at $735 billion in December. This print came in weaker than the market expectation for an increase of 0.4%. The USD Index continues to edge lower toward 96.50 in the European session on Wednesday. Markets expect Nonfarm Payrolls to rise 70K in December and project the Unemployment Rate to hold steady at 4.4%.

USD/JPY lost nearly 1% for the second consecutive day on Tuesday and extended its slide in the Asian session on Wednesday. At the time of press, the pair was trading near 153.20, down about 0.8% on a daily basis. Reflecting the broad-based Japanese Yen strength, EUR/JPY was last seen losing nearly 0.7% on the day at around 182.50.

Earlier in the day, the data from China showed that the Consumer Price Index rose by 0.2% on a monthly basis in January. This print matched December's increase and came in below the market expectation of 0.3%.

AUD/USD gathers bullish momentum on Wednesday and trades at its highest level since January 2023 above 0.7100. Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said on Wednesday that inflation is too high, adding that the central bank will do what is needed to bring it back toward their target range.

EUR/USD gains traction and trades above 1.1900 after posting marginal losses on Tuesday. European Central Bank Executive Board member Isabel Schnabel will deliver a speech later in the day.

GBP/USD stages a rebound after losinng nearly 0.4% on Wednesday and trades above 1.3670 in the European session on Wednesday.

Gold corrected lower and closed in negative territory on Tuesday. XAU/USD stays relatively quiet early Wednesday and fluctuates in a narrow channel at around $5,050.

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

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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