Swiss Franc gains as disappointing US Nonfarm Payrolls pressure the US Dollar

USD/CHF drops to its lowest level since June 18 after a softer-than-expected US NFP report.
Odds of a September Fed rate hike decline after the June employment report.
Swiss inflation remains within the SNB's target range, supporting a steady policy outlook.

Vishal Chaturvedi FXStreet

USD/CHF weakens sharply on Thursday as the US Dollar (USD) comes under broad selling pressure following a weaker-than-expected US Nonfarm Payrolls (NFP) report. At the time of writing, the pair is trading around 0.8029, its lowest level since June 18, down nearly 0.80% on the day.

Data released by the US Bureau of Labor Statistics (BLS) showed the US economy added 57K jobs in June, well below market expectations of 110K. Meanwhile, May's payrolls were revised lower to 129K from the previously reported 172K.

Despite the slowdown in hiring, the Unemployment Rate unexpectedly edged lower to 4.2% from 4.3% in May. Average Hourly Earnings rose 0.3% MoM and 3.5% YoY in June, matching market expectations.

Traders largely focused on the weak headline payrolls figure, prompting them to trim expectations for a near-term Federal Reserve (Fed) rate hike. According to the CME FedWatch Tool, the probability of a rate increase at the September meeting fell to 51% from 63% before the release of the employment report.

In response, the US Dollar extended its intraday losses, dropping to a two-week low after earlier weakness triggered by a sharp rebound in the Japanese Yen (JPY) amid speculation that Japanese authorities may have intervened in the foreign exchange market.

The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading around 100.70, down about 0.70% on the day.

Earlier in the day, data released by the Swiss Federal Statistical Office showed that Swiss inflation slowed in June for the first time in eight months. The Consumer Price Index (CPI) was flat at 0.0% MoM, below the 0.1% forecast and down from 0.2% in May.

On a yearly basis, CPI eased to 0.5%, in line with market expectations and below the 0.6% increase recorded in May.

Persistently subdued inflation reinforces expectations that the Swiss National Bank (SNB) will leave its policy rate unchanged at 0% for the foreseeable future, as inflation remains comfortably within the central bank's 0%-2% price stability range.

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.

Author

Vishal Chaturvedi

FXStreet

I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.

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