- US nonfarm payrolls are expected to increase by 180,000 in January, following an increase of 216,000 in December.
- The US jobs report will likely have an impact on the market's assessment of the Fed's dovish pivot and the direction of the US Dollar.
- The US Bureau of Labor Statistics will release employment data at 13:30 GMT.
On Friday at 13:30 GMT they will be published US Nonfarm Payrolls (NFP). The US labor market report will be published by the Bureau of Labor Statistics (BLS) and is expected to have a significant influence on the direction of the US Dollar (USD) price.
What to expect from the next Non-Farm Payrolls report?
The nonfarm payrolls report is expected show that the US economy added 180,000 jobs in the first month of 2024, down from a whopping 216,000 jobs created in December. Expected that the unemployment rate increases from 3.7% in December to 3.8% in January. Regarding wage inflation, it is expected that average hourly wage increases 4.1% year-on-year until January, at the same rate as in December.
US labor market data is key to gauging the timing and pace of interest rate cuts by the US Federal Reserve (Fed) this year, especially after the US central bank reduced expectations for a rate cut in March following the conclusion of its two-day monetary policy meeting on Wednesday.
On Wednesday, The Fed kept its reference interest rates unchanged in the range of 5.25% to 5.50% for the fourth consecutive meeting, in line with market expectations. The statement, however, was read as slightly harsh as it stated: “until there is greater confidence that inflation is moving sustainably towards 2%, the Committee does not anticipate that it will be appropriate to lower the target range.” for the federal funds rate.”
During his press conference after the monetary policy meeting, Fed Chair Jerome Powell said, “based on today's meeting, I would tell you that I do not think it is likely that the Committee will reach a level of confidence by the time of the March meeting to identify that month as the time to do that [bajar los tipos de interés]But that remains to be seen.”
“It's probably not the most likely case, or what we would call the base case,” Powell added.
According to the CME Group's FedWatch tool, the probability that the Fed will cut rates in March fell sharply from around 50% at the beginning of the week to 35% following the monetary policy announcement. Meanwhile, markets now see a 90% chance that the Fed will lower borrowing costs in May.
Previewing the January jobs report, analysts at TD Securities (TDS) said: “As is typical in January, we expect a strong increase in payrolls of 230,000.”
“The annual NFP benchmark and updated seasonal factors will also add nuance to this report,” TDS analysts added.
Meanwhile, US private sector employment increased by 107,000 people in Januarydata published by Automatic Data Processing (ADP) showed on Wednesday, below the expected increase of 145,000 people.
How will January US non-farm payrolls affect EUR/USD?
The non-farm payrolls report, a significant indicator of the US labor market, will be released at 13:30 GMT. The EUR/USD gained more than 1% in December and hit its highest level since July at 1.1140 before staging a technical correction to start 2024. Traders are bracing for a big spike in volatility with the report US employment, which could offer fresh directional impetus to the pair.
An encouraging NFP reading above 200,000, combined with a surprising rebound in wage inflation, could lend credence to the Fed's hawkish rhetoric, fueling the dollar's renewed bullish trend., while weighing on the EUR/USD. On the contrary, the dollar could come under new selling pressure if the data disappoints and reinforces expectations for a Fed rate cut in March. Following the Fed's rejection of an early interest rate cut, a sell-off in the dollar following a disappointing NFP data could be short-lived.
FXStreet analyst Dhwani Mehta offers a brief technical outlook for EUR/USD:
“He EUR/USD It jumped from the critical support of the 100-day horizontal simple moving average (SMA), then aligned at 1.0780. With the rebound, the pair surpassed the 200-day SMA at 1.0840. Despite the strong rally, the 14-day Relative Strength Index (RSI) remains below the 50 level, justifying buyers' caution.
On the upside, EUR/USD buyers need a daily close above the 21-day SMA in 1.0891 to maintain the rise. The next relevant bullish barrier is located at the 50-day SMA near 1.0920above which a test of the psychological level of 1.0950. On the other hand, any pullback in the pair could retest the resistance-turned-support of the 200-day SMA. Meanwhile, the 100-day SMA could be the last line of defense for buyers.”
Nonfarm Payrolls FAQ
What are non-farm payrolls?
Nonfarm payrolls (NFP) are part of the monthly employment report from the US Bureau of Labor Statistics. The nonfarm payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the agricultural sector.
How do nonfarm payrolls influence the Federal Reserve's monetary policy decisions?
The nonfarm payrolls figure can influence Federal Reserve decisions by providing a measure of how successfully the Fed is fulfilling its mandate of promoting full employment and 2% inflation.
A relatively high nonfarm payroll figure means that more people are employed, earning more money, and therefore likely spending more. Conversely, a relatively low nonfarm payrolls result could mean that people have difficulty finding work.
The Federal Reserve typically raises interest rates to combat high inflation caused by low unemployment, and lowers them to stimulate a stagnant labor market.
How do non-farm payrolls affect the US dollar?
Non-farm payrolls typically have a positive correlation with the US Dollar. This means that when payroll numbers are higher than expected, the Dollar tends to rise and vice versa when they are lower.
The NFP influences the US Dollar through its impact on inflation, monetary policy expectations, and interest rates. A higher NFP usually means that the Federal Reserve will be tighter in its monetary policy, which supports the USD.
How do non-farm payrolls affect the price of Gold?
Non-farm payrolls usually have a negative correlation with the price of Gold. This means that a higher than expected payroll figure will have a depressive effect on the price of Gold and vice versa.
A higher NFP usually has a positive effect on the value of the USD, and like most major commodities, Gold is priced in US Dollars. Therefore, if the USD gains value, fewer Dollars are needed to buy an ounce of Gold.
Furthermore, higher interest rates (usually aided by a higher NFP) also reduce the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Sometimes nonfarm payrolls provoke a reaction opposite to what the market expects. For what is this?
Nonfarm payrolls are just one component within a larger employment report and can be overshadowed by the other components.
Sometimes, when nonfarm payrolls beat forecasts but average weekly earnings are lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the drop in earnings as deflationary.
The Participation Rate and Average Weekly Hours components can also influence the market reaction, but only on rare occasions, such as in the “Great Resignation” or the Global Financial Crisis.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
