Nonfarm Payrolls (NFP) in the US rose 209,000 in June, the US Bureau of Labor Statistics reported on Friday. This reading came in below the market expectation of 225,000. May's increase of 339,000 got revised lower to 306,000.
The Unemployment Rate edged lower to 3.6% from 3.7% as expected and the annual wage inflation, as measured by the Average Hourly Earnings, stood unchanged at 4.4%, compared to analysts' estimate of 4.2%. Finally, the Labor Force Participation Rate held steady at 62.6%, while the U6 Unemployment Rate rose to 6.9% from 6.7%.
"The number of long-term unemployed (those jobless for 27 weeks or more), at 1.1 million, changed little in June and accounted for 18.5% of the total unemployed," the BLS noted. "The number of persons employed part time for economic reasons increased by 452,000 to 4.2 million in June, partially reflecting an increase in the number of persons whose
hours were cut due to slack work or business conditions."
The US Dollar (USD) came under renewed selling pressure with the initial reaction to the mixed jobs data. As of writing, the US Dollar Index was down 0.45% on the day at 102.65. Meanwhile, the benchmark 10-year US Treasury bond yield stays in positive territory above 4%, helping the USD limit its losses.
Assessing the data, "I expect the US Dollar to remain on the back foot, but to hold some of its ground," said FXStreet Analyst Yohay Elam.
"The mix of weak job growth and wages marching forward shifts the focus to next week's Consumer Price Index (CPI) report," Elam further added. "For stocks, the NFP is far from the Goldilocks scenario – companies would like lower labor costs and many employees able to buy its products. The report shows the opposite: high costs and not-so-amazing job growth. I think shares will remain mixed."
The section below was published at 6:00 GMT as the NFP release preview.
- US Nonfarm Payrolls data is likely to report 225K in June vs. 339K seen in May.
- The headline NFP and Average Hourly Earnings are key to the Fed’s rate hike outlook.
- US Unemployment Rate is seen a tad lower at 3.6% in June from May’s 3.7% reading.
Following the releases of significant US employment data in the holiday-shortened week, the US Dollar (USD) is geared up for the all-important US Nonfarm Payrolls report due this Friday, which will likely lead to a recalibration of the US Federal Reserve (Fed) rate hike bets in the second half of this year.
Renewed US-China trade tensions, combined with mounting recession fears in the world’s largest economy, are helping the US Dollar find its feet heading toward the highly-anticipated US labor market data. Absent Fedspeak, thin trading and weak US ISM Manufacturing PMI data weighed on the Greenback in the early part of the week.
On Monday, the ISM Manufacturing PMI in the United States shrank for eight consecutive months to 46.0 in June, hitting the lowest level since May 2020. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said that “the health of the US manufacturing sector deteriorated sharply in June, fueling fears that the economy could slip into a recession in the second half of the year.”
In response to the data, the closely-watched spread between the 2-year and 10-year US Treasury bond yields hit the widest since 1981, a deeper inversion than the one witnessed in March during the US regional banking crisis. The yield differential between 2 and 10-year Treasuries has been inverted since last July so Monday’s inversion is not unusual but the magnitude of inversion is a signal that a US economic recession is inevitable.
What to expect in the next Nonfarm Payrolls report?
Amidst mounting recession fears and hawkish Fed expectations, markets eagerly look forward to Friday’s critical United States (US) jobs data for June to provide a fresh directional impetus to the US Dollar.
The US economy is widely expected to have added 225K jobs in the sixth month of the year, compared with a 339K jobs growth reported in May. The Unemployment Rate is expected to tick down to 3.6% in June vs. 3.7% reported in May.
Apart from the headline Nonfarm Payrolls number, the Average Hourly Earnings will be closely scrutinized for fresh hints on the country’s wage inflation, which has a strong bearing on the Fed rate hike prospects. The Average Hourly Earnings are seen rising 4.2% on a yearly basis in June as against a 4.3% increase booked previously.
The US labor market remains very tight, as aptly portrayed by the latest data published by Automatic Data Processing (ADP) on Thursday. The United States private sector employment rose by 497,000 in June, followed by the 267,000 increase recorded in May while outpacing estimates of 228,000 by a wide margin. Meanwhile, JOLTS Jobs Openings came in at 9.82 million at the end of May, dropping from an upwardly revised 10.3 million in April, just missing the expectations of 9.935 million.
Analysts at TD Securities noted, “we look for payrolls to stay strong in June, though they would still be losing momentum at the margin following more robust increases in April-May. We also expect the UE rate to drop a tenth to 3.6% as we are assuming job creation in the household survey will normalize after the May plunge. Average hourly earnings likely advanced 0.3% m/m, with the y/y measure staying unchanged at a still-elevated 4.3%.”
When will US June Jobs Report data be released and how could it affect EUR/USD?
The Nonfarm Payrolls number, part of the US jobs report, will be released at 12:30 GMT on July 7. EUR/USD has been struggling around the 1.0900 level so far this week. The labor market data could help determine whether the US Dollar will maintain the upper hand against the Euro.
Stronger-than-expected NFP numbers and hot wage inflation data would strengthen expectations of more Fed tightening in the upcoming months, in line with the Fed’s Dot Plot chart, which suggested two more rate hikes ahead. Fed Chair Jerome Powell also said last week that “a strong majority of Fed policymakers expect two or more rate hikes by year-end.”
Alternatively, the US Dollar could give up the recovery gains and resume its downtrend on signs of cooling wage inflation and below-forecasts NFP data. Downbeat data could raise doubts about the chances of any further rate increases by the Fed after the expected 25 basis points (bps) July hike. In such a scenario, EUR/USD could see a fresh advance 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 is clinging to the bullish 21-Daily Moving Average (DMA) at 1.0890 in the run-up to the US NFP showdown. EUR/USD buyers could find some support, as the 14-day Relative Strength Index (RSI) sits just above the midline.”
Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, Euro buyers need to find a strong foothold above the 21 DMA barrier at 1.0890 to sustain the previous rebound, with eyes on the 1.0950 psychological barrier. The next critical resistance is seen at the June top of 1.1012. Conversely, immediate support awaits at the mildly bearish 50 DMA at 1.0857, below which the horizontal 100 DMA at 1.0828 will limit the downside. The last line of defense for Euro buyers is envisioned at the 1.0750 key level.
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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