US Dollar Index (DXY) dives below 98.00 with US employment on the spotlight

The Dollar pares previous gains on Friday with all eyes on the key Nonfarm Payrolls release.
ADP Employment and Jobless Claims figures seen on Thursday have heightened hopes of Fed easing.
Futures markets are pricing in a 99.4% chance of a quarter-point Fed rate cut in September.

Guillermo Alcala FXStreet

The US Dollar is losing ground against its main peers on Friday, with the market anticipating a soft US Nonfarm Payrolls Report, due later today, to confirm market expectations that the Federal Reserve will finally cut interest rates in September.

The US Dollar Index, which measures the value of the USD against a basket of currencies, was rejected at 98.45 on Thursday and dropped 0.35% so far today, returning to levels right below the 98.00 mark at the time of writing.

Fed easing bets surged after US ADP and Jobless Claims releases

US ADP Employment and weekly Jobless data released on Thursday underscored the softening momentum of the labour market and strengthened the case for an interest rate cut after the next FOMC meeting, due on September 16 and 17.

Those hopes received further endorsement from comments of Fed officials Williams and Goolsbee, who warned about the downside risks for the labour market and showed openness to ease monetary policy in an attempt to support economic growth.

The market is now practically fully pricing a 25 bps rate cut in two weeks, but remains wary of holding large USD Shorts ahead of the NFP release. The market consensus points to a 75K increase in private payrolls in August, a similar reading to July’s 73K reading, which triggered a sharp USD sell-off last month.

Economic Indicator

Average Hourly Earnings (MoM)

The Average Hourly Earnings metric, released by the US Bureau of Labor Statistics, is a significant indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to it when setting interest rates. A high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

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.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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