Nonfarm Payrolls (NFP) in the US rose by 150,000 in October, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in below the market expectation of 180,000. September's increase of 336,000 got revised lower to 297,000.
The Unemployment Rate edged higher to 3.9% from 3.8% in the same period, while the Labor Force Participation Rate declined to 62.7% from 62.8%. Annual wage inflation, as measured by the changed in Average Hourly Earnings, softened to 4.1% from 4.3%.
Market reaction to Nonfarm Payrolls data
The US Dollar came under heavy selling pressure with the immediate reaction. At the time of press, the US Dollar Index was down 0.6% on the day at 105.55.
Assessing the October jobs report, "the data is is weak enough to reduce the chances of a rate hike – it cements the end of the tightening cycle. That is adverse for the US Dollar. The figures are neither too weak, causing investors to flee to the safety of the Greenback," FXStreet Analyst Yohay Elam said and added:
"For stocks, it is the perfect scenario – the economy is not too hot to trigger hikes, nor too cold to trim profits. For Gold, falling Treasury yields are a boon, yet events in the Middle East are also eyed."
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 New Zealand Dollar.
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: 12/08/2023 13:30:00 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 Nonfarm Payrolls data at 06:00 GMT.
- US Nonfarm Payrolls are forecast to rise by 180K in October, nearly halving from September’s 336K increase.
- Headline NFP and Average Hourly Earnings data are set to significantly impact the US Dollar.
- The Bureau of Labor Statistics is due to publish the United States employment data at 12:30 GMT.
The Bureau of Labor Statistics (BLS) is due to release the highly-anticipated Nonfarm Payrolls (NFP) report from the United States (US) on Friday, which could have major ramifications for US Federal Reserve (Fed) policy outlook. The US Dollar (USD) is poised for a big reaction to the labor market data, as NFP data tends to infuse intense volatility across the FX board.
The Fed on Wednesday kept the policy rate steady in its current 5.25%-5.50% range, as widely expected. The US Dollar, however, succumbed to the sell-off in the US Treasury bond yields after Fed Chair Jerome Powell remained non-committal on the need for further tightening. Although Powell did not rule out another hike, markets perceived his words as not-so hawkish as they expected. Powell acknowledged tighter financial conditions while adding that taming inflation will most likely require a slowdown in growth and dampening in the labor market.
Earlier on Wednesday, Automatic Data Processing (ADP) said the US private sector payrolls rose 113K in October, compared with an 89K job addition in September while below the estimate of 150K. The Job Openings and Labor Turnover Summary (JOLTS) report showed that the number of job openings on the last business day of September stood at 9.553M, slightly up from a revised 9.497M in August and ahead of the 9.25M forecast.
The US employment data continued to portray persistent labor market tightness, which if confirmed by a strong October Nonfarm Payrolls data on Friday could bring back Fed rate hike bets on the table.
Markets are now pricing in only a 20% chance of a rate increase in December, down from 29% on Tuesday, with 25% odds of a raise in January, down from 39% on Tuesday, according to the CME Group’s FedWatch Tool. Markets seem to have priced in a 70% chance that the Fed is done hiking rates, and are even expecting rate cuts amounting to 85 basis points (bps) next year, starting as early as June.
What to expect in the next Nonfarm Payrolls report?
Friday’s Nonfarm Payrolls data is likely to show that the US economy added 180K jobs last month, almost halving from a job addition of 336K in September. The Unemployment Rate is expected to hold steady at 3.8% in the reported month.
Average Hourly Earnings, a measure of wage inflation, will be also closely scrutinized for its impact on the Fed interest rates outlook. Average Hourly Earnings are seen rising 4.0% over the year in October, slowing from a 4.2% increase in September. On a monthly basis, Average Hourly Earnings are seen a tad higher at 0.3% in October, as against a 0.2% increase in September.
Analysts at TD Securities noted, “Job gains likely lost meaningful speed in Oct, with payrolls mean-reverting post booming Sep report (it will also reflect an impact on mfg jobs due to the UAW strike). We look for the UE rate to stay unchanged at 3.8%, and for wage growth to print 0.2% MoM.”
When will US October Nonfarm Payrolls data be released and how could it affect EUR/USD?
The Nonfarm Payrolls, a widely watched indicator of the US labor market, will be published at 12:30 GMT. EUR/USD is struggling to extend the renewed uptick above 1.0600, despite the dovish Fed expectations. It remains to be seen if the US employment data will help the pair find acceptance above the latter.
An upbeat NFP headline print and hot wage inflation data could reignite expectations of a December Fed rate hike, offering much-needed support to the US Dollar while dragging EUR/USD back toward 1.0500. On the other hand, the US Dollar could resume its correction from multi-week highs, if the data comes in weak and fans expectations that the Fed’s tightening cycle is over. In such a case, EUR/USD could extend its recovery toward 1.0750.
Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for trading EUR/USD on the NFP data release. “The main currency pair has moved away from near weekly highs of 1.0675, although remains hopeful as the 14-day Relative Strength Index (RSI) holds well above the midline. The immediate resistance is aligned at the weekly high of 1.0675, above which the 1.0700 level could be retested en-route the psychological 1.0750 barrier.”
“On the flip side, the 21-day Simple Moving Average (SMA) at 1.0582 could lend some support to buyers if the downswing kicks in. The next relevant cushion is seen at the two-week low of 1.0517,” Dhwani adds.
How do employment levels affect currencies?
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
Why is wage growth important?
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
How much do central banks care about employment?
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.