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USD/JPY slumps below 149.00 after weak US employment data

  • USD/JPY declines sharply in the American session on Friday.
  • Nonfarm Payrolls in the US rose by 73,000 in July.
  • Downward revisions to May and June prints weigh heavily on the USD.

USD/JPY turned south in the early American session on Friday as markets reacted to the July employment data from the US. At the time of press, the pair was trading at 148.80 losing 1.3% on a daily basis.

Weak NFP drags USD lower

The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) rose by 73,000 in July. This reading came in below the market expectation of 110,000. Moreover, the BLS noted that the May NFP increase was revised down by 125,000 and the change for June was revised down by 133,000.

"With these revisions, employment in May and June combined is 258,000 lower than previously reported," the BLS said in its press release.

Reflecting the negative impact of these figures on the US Dollar's (USD) valuation, the USD Index was last seen losing 1.1% on the day at 99.00.

Later in the session, the Institute for Supply Management (ISM) will publish the Manufacturing Purchasing Managers Index (PMI) data for July.

Nonfarm Payrolls FAQs

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.

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.

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.

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.

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

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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