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Forex Today: US Nonfarm Payrolls data for September to drive USD performance

Here is what you need to know on Friday, October 4:

The US Dollar (USD) Index, which tracks the USD's valuation against a basket of six major currencies, extended its weekly uptrend and registered its highest daily close since mid-August on Thursday. Early Friday, the index edges slightly lower as investors gear up for the US employment report for September, which will include 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 Japanese Yen.

 USDEURGBPJPYCADAUDNZDCHF
USD 1.24%1.60%2.87%0.36%0.90%2.16%1.26%
EUR-1.24% 0.36%1.60%-0.85%-0.27%0.93%0.13%
GBP-1.60%-0.36% 1.37%-1.21%-0.64%0.57%-0.27%
JPY-2.87%-1.60%-1.37% -2.39%-1.96%-0.66%-1.51%
CAD-0.36%0.85%1.21%2.39% 0.59%1.80%0.99%
AUD-0.90%0.27%0.64%1.96%-0.59% 1.21%0.37%
NZD-2.16%-0.93%-0.57%0.66%-1.80%-1.21% -0.86%
CHF-1.26%-0.13%0.27%1.51%-0.99%-0.37%0.86% 

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).

Investors expect the NFP to rise by 140,000 following the 142,000 increase recorded in August and see the Unemployment Rate holding steady at 4.2%. Ahead of these key data releases, the USD Index fluctuates in a tight range slightly below 102.00. Meanwhile, US stock index futures trade mixed, pointing to a cautious stance. The data from the US showed on Thursday that the number of first-time applications for unemployment benefits rose to 225,000 in the week ending September 28 from 219,000 in the previous week. On a positive note, the ISM Services PMI improved to 54.9 in September from 51.5 in August, highlighting an ongoing expansion in the service sector's business activity at an accelerating pace.

EUR/USD closed the fifth consecutive trading day in negative territory on Thursday. The pair struggles to gain traction in the European morning on Friday and trades slightly above 1.1000.

GBP/USD declined sharply and lost more than 1% on Thursday, pressured by the broad-based USD strength and dovish comments from Bank of England Governor Andrew Bailey. The pair stages a technical correction early Friday and trades in positive territory above 1.3150.

Following Wednesday's upsurge, USD/JPY continued to inch higher and rose above 147.00 for the first time since early September on Thursday. The pair lost its traction during the Asian trading hours on Friday and retreated below 146.50.

Gold dropped below $2,640 on Thursday but erased a large portion of its daily losses in the American session. XAU/USD stays relatively quiet and trades in a narrow band at around $2,660 early Friday.

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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