Nonfarm Payrolls (NFP) in the US rose 187,000 in August, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in higher than the market expectation of 170,000. On a negative note, July's increase of 187,000 got revised lower to 157,000.
The Unemployment Rate climbed to 3.8% from 3.5% in July, while the Labor Force Participation Rate improved to 62.8% from 62.6%. Additionally, wage inflation, as measured by the change in Average Hourly Earnings, edged lower to 4.3% on a yearly basis from 4.4%.
Assessing the labor market data, "it may be early, but the most recent report also points to a lower chance of a hike in November – nor any more increase in the coming years. The NFP helps cement the notion that the Fed is done. This is favorable situation for stocks and Gold, and adverse for the US Dollar," said FXStreet Analyst Yohay Elam.
"It would take much worse figures to scare markets of an imminent recession, resulting in a stock sell-off and a surge in demand for the safe-haven US Dollar. Could this happen? Perhaps, but not right now," he added.
The US Dollar came under modest selling pressure with the immediate reaction to the US jobs report. As of writing, the US Dollar Index was down 0.3% on the day at 103.30.
US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Japanese Yen.
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
United States Nonfarm Payrolls
The Nonfarm Payrolls released by the US Bureau of Labor Statistics presents the number of new jobs created during the previous month in all non-agricultural businesses. The monthly changes in payrolls can be extremely volatile due to their high relation with economic policy decisions made by the Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the Forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months' reviews and the unemployment rate are as relevant as the headline figure, and therefore market's reaction depends on how the market assets them all.Read more.
Next release: 10/06/2023 12:30:00 GMT
Source: US Bureau of Labor Statistics
Why it matters to traders
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
This section below was published as a preview of the US August jobs report at 06:00 GMT.
- US Nonfarm Payrolls are expected to increase by 170K in August, slowing from the 187K reported in July.
- The headline NFP and Average Hourly Earnings could impact the Fed’s future policy.
- The Unemployment Rate in the United States is seen steady at 3.5% in August.
Traders scale back the odds of a final interest-rate hike by the US Federal Reserve (Fed) this year after US job openings dipped to levels unseen since early 2021. The US JOLTS Job Openings data revived bets of a Fed pause on rates and triggered an extended US Dollar correction from 12-week highs set last Friday.
The highly anticipated Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium on Friday was perceived as hawkish. Powell’s commentary hinted at one more rate hike this year, reinforcing the narrative of ‘higher rates for longer’. The US Dollar Index rallied hard on his hawkish rhetoric and tested the key 104.50 level.
Following Powell’s speech, the odds for a November Fed rate hike spiked up to roughly 57%. This probability has fallen to 40%, in the face of the disappointing US jobs data, according to data from the CME Group’s FedWatch Tool.
What to expect in the next Nonfarm Payrolls report?
Attention turns toward Friday’s critical United States (US) jobs data for August. The key employment statistics will confirm whether labor market conditions are loosening up amid concerns over a likely ‘hard landing’.
The Nonfarm Payrolls data is expected to show that the US economy added 170K jobs in the eighth month of the year, compared with a job gain of 187K jobs reported in July. The Unemployment Rate is likely to hold steady at 3.5% in the reported period.
The focus will also be on Average Hourly Earnings, a measure of wage inflation, which could have a strong influence on the Fed’s interest rate path. The Average Hourly Earnings are seen rising 4.4% on a yearly basis in August, at the same pace seen in July. The monthly Average Hourly Earnings is set to increase 0.3% in August compared with a 0.4% growth in July.
ADP on Wednesday reported that the US private sector added 177,000 jobs in August, well below the revised total of 371,000 added in July. US Q2 GDP growth was revised down to a 2.1% annual rate from 2.4% seen in the preliminary reading.
Analysts at TD Securities noted, “payrolls likely posted another sub-200k gain in August, remaining in the vicinity of the Jun-Jul gains. The August increase would maintain the downtrend in the three-month pace, barring any major revisions. We also look for the UE rate to stay unchanged at 3.5%, following its second consecutive decline in July. We also expect wage growth to print 0.3% m/m (4.3% y/y).”
When will US August Jobs Report data be released and how could it affect EUR/USD?
The Nonfarm Payrolls number, part of the US labor market report, will be published at 12:30 GMT on September 1. EUR/USD has been struggling below the 1.0900 level despite the latest discouraging US data. The labor market data holds the key to determining the next direction of the US Dollar against the Euro.
A stronger-than-expected NFP print and hot wage inflation data would confirm Fed Chair Powell’s hawkish message of another rate hike in the offing. The US Dollar is likely to catch a strong bid on robust employment and pay growth data, driving EUR/USD back toward the two-month low of 1.0766.
On the other hand, the US Dollar could extend its downside if the data suggest loosening labor market conditions, bolstering Fed pause bets for this year. In such a scenario, EUR/USD could rebound further toward 1.1000.
Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair and explains: “The main currency pair has failed to find acceptance above the horizontal 100-Daily Moving Average (DMA) at 1.0924 so far this week. The 14-day Relative Strength Index (RSI) is trending below the midline. These technical indicators suggest that EUR/USD remains vulnerable heading into the US NFP data release.”
Dhwani also outlines important technical levels to trade the EUR/USD pair: “Immediate support awaits at the mildly bearish 200 DMA at 1.0816, below which the two-month low of 1.0766 could be threatened. The last line of defense for Euro buyers is envisioned at the 1.0700 round figure. On the flip side, strong resistance is located at the 21 DMA of 1.0896. Euro buyers need to crack the latter on a sustained basis to retest the 100 DMA key barrier, as they keep sight on the August top of 1.1012.”
NonFarm Payrolls FAQs
What are Nonfarm Payrolls?
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.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
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.
How does Nonfarm Payrolls affect the US Dollar?
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.
How does Nonfarm Payrolls affect Gold?
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.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
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.
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