US employment forecast: Nonfarm Payrolls growth to cool in April after strong first quarter

• Non-Farm Payrolls are forecast to increase by 243,000 in April, up from 303,000 in March.
• The report on employment in the United States will be published by the Bureau of Labor Statistics at 12:30 GMT.
• The US dollar will be keeping an eye on employment data after the Fed on Wednesday signaled its intention to keep interest rates at high levels for longer.

Following the Federal Reserve (Fed) announcements on Wednesday, attention turns to Non-Farm Payrolls (NFP), which will be published on Friday at 12:30 GMT.

US labor market data will be released by the Bureau of Labor Statistics (BLS) and will help determine the extent and timing of the Fed's interest rate cuts this year, having a significant impact on market sentiment and US dollar in the short term.

What to expect from the next Non-Farm Payrolls report?

The Nonfarm Payrolls report is expected to show that the U.S. economy added 243,000 jobs last month, down sharply from the 303,000 jobs created in March.

The unemployment rate will remain at 3.8% in the same period. For its part, average hourly earnings, an important indicator of wage inflation, are expected to continue their downward trend and grow 4.0% in the year to April, after increasing 4.1% in the twelve months until March.

The headline NFP figure, along with wage inflation data, will be scrutinized to gauge the Fed's rate cut schedule, after Chairman Jerome Powell kept everyone on edge about it on Wednesday.

The world's most powerful central bank kept Fed interest rates between 5.25% and 5.5% following its May policy meeting. The Fed decided to slow down the reduction of its balance sheet to $25 billion from $60 billion.

Powell acknowledged a broader shift in Fed thinking toward keeping borrowing costs at two-decade highs for longer, adding that central bankers want “greater confidence” that inflation is falling toward 2 %.

A series of recent US economic data justified the Fed's longer higher rate stance, especially following strong core inflation data from the US. PCE and a larger-than-expected increase in the US employment cost index (ICE) for the first quarter. Data released by the BLS on Tuesday showed that the ICE, the broadest measure of labor costs, rose 1.2% last quarter after rising 0.9% in the fourth quarter.

However, Fed Chairman Jerome Powell ruled out a rate hike as the next measure. This, together with the Fed's plans to slow down the speed of reduction of its balance sheet, was perceived as a moderate inclination of the entity towards eventual rate cuts this year. The probability of the Fed's first rate cut, likely in September, rose to 53% from 47% before the Fed's announcements, according to the CME Group's FedWatch tool.

Meanwhile, the U.S. private sector added 192,000 jobs in April, a modest decline from the upwardly revised 208,000 in March, the ADP reported Wednesday. The data exceeded analysts' estimates, which predicted an increase of 175,000 jobs. It is worth mentioning that NFP has outperformed ADP for eight consecutive months. On the contrary, job offers in the United States fell by 325,000 positions, to 8.488 million, on the last day of March, as reported by the BLS on the same day. The market forecast was 8.69 million.

Regarding the April jobs report, BBH analysts said: “The highlight will be Friday's jobs report. The consensus is that 250,000 jobs will be created, up from 303,000 in March, and the unemployment rate will rise. will remain at 3.8%. The pace of wage growth, a key driver of core services CPI inflation, will also attract much attention. Average hourly earnings are expected to slow to 4.0%. year-on-year”.

How will April Non-Farm Payrolls affect EUR/USD?

The Fed's dovish signals weighed on the broader US dollar, along with US Treasury yields, pushing the EUR/USD pair back above the 1.0700 threshold. Attention now turns to the US NFP report for a new directional move in the currency pair.

If the NFP data beats forecasts and wage inflation is higher than expected, the US Dollar could decline against the Euro to 1.0600. On the contrary, if the US employment data clearly indicates an easing of labor market conditions, the Dollar could suffer a new decline due to a possible confirmation of rate cuts this year. In such a case, EUR/USD could surpass the 1.0800 threshold.

FXStreet analyst Dhwani Mehta offers a brief technical outlook for EUR/USD:

“EUR/USD is struggling around the 21-day SMA at 1.0715, while the 14-day Relative Strength Index (RSI) is trading below the 50 level, suggesting that downside risks remain in play.”

“Buyers need to find strong support above 1.0800, the convergence of the 200 and 50-day SMAs, to trigger a further recovery. The next bullish barrier for EUR/USD will be at the 100 SMA days at 1.0842. On the contrary, the initial demand zone is located at the April 16 low at 1.0619, below which the psychological level of 1.0550 will be tested on the way to the bottom. November 2023 at 1.0517,” adds Dhwani.