US Nonfarm Payrolls Forecast: Slowdown expected in March amid broadly tight labor market

• US Nonfarm Payrolls are expected to increase by 200,000 positions in March, following an increase of 275,000 in February.
• The US Bureau of Labor Statistics will release the labor market report at 12:30 GMT.
• US employment data could impact Fed rate cut expectations and US Dollar dynamics.

On Friday at 12:30 GMT the US Bureau of Labor Statistics (BLS) will release high-impact data on Non-Farm Payrolls (NFP). US labor market data is being closely analyzed by market participants for new data on the Federal Reserve's (Fed) outlook for interest rates, which could impact the US dollar in the near future. term.

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

The Nonfarm Payrolls report is expected to show that the U.S. economy may have added 200,000 jobs last month, down from an increase of 275,000 in February. Data for January was revised significantly downwards, showing a creation of 229,000 jobs instead of the 353,000 previously published.

The unemployment rate is likely to remain at 3.9% over the same period. Meanwhile, average hourly earnings, an important indicator of wage inflation, will rise 4.1% in the year to March, slightly less than the 4.3% in February.

The headline NFP data, along with previous revisions and wage inflation data, will be key to firming market expectations of a Fed rate cut as early as June. The probability that the Fed will begin to lower rates in June stands at 62%, according to the CME Group's FedWatch tool, up from 58% at the beginning of the week, on Monday.

The revival of dovish Fed expectations could be attributed to recent comments from Fed policymakers and the weaker-than-expected US ISM Services PMI as markets paid little attention to the strong US JOLTS and ADP private employment vacancy data.

Amid recent statements from the Federal Reserve, Fed Chair Jerome Powell on Wednesday reassured markets about the likelihood of interest rate cuts this year. Powell said that “if the economy generally evolves as we expect,” he and his Fed colleagues largely agree that lowering policy rates will be appropriate “sometime this year,” while the Fed governor Fed Adriana Kugler stated early Thursday that she expects the trend toward disinflation to continue, paving the way for the central bank to cut interest rates.

Elsewhere, the U.S. private sector added 184,000 jobs in March, a decent increase from the upwardly revised figure of 155,000 in February, the ADP reported Wednesday. The data exceeded analysts' estimates, which predicted an increase of 148,000 jobs. Job openings in the US increased by 8,000 positions, to 8.756 million, on the last day of February, the Department of Labor's Bureau of Labor Statistics reported on Tuesday. The market forecast was 8.74 million.

Commenting on the March jobs report, analysts at TD Securities (TDS) stated: “We expect job growth to have lost momentum in March, following strong gains in January and February, which were between 200,000 and 300,000 jobs. Regarding the unemployment rate, we expect it to remain unchanged at 3.9%.”

“We also expect wage growth to return to the pace of 0.3% monthly – and drop 0.2pp to 4.1% year-on-year – after the ups and downs of the last two reports,” added TDS analysts.

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

Increasing bets on a Fed interest rate cut keep the US dollar weaker against its major counterparts, pushing the EUR/USD pair to a weekly high near 1.0875. It remains to be seen if the pair can maintain its rise ahead of the US NFP.

An NFP data above 200,000, combined with higher-than-expected wage inflation, could temper bets on a Fed rate cut in June, giving the needed boost to the US dollar and lifting EUR/USD to 1.0750. On the contrary, if US employment data points to a relaxation of labor market conditions and a slowdown in wage growth trends, the Dollar could be subject to renewed selling pressure in a context of strengthening the Fed's dovish expectations. In such a case, the EUR/USD pair could surpass the 1.0900 threshold.

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

“The EUR/USD pair has reclaimed the critical 50-day SMA at 1.0830 on Wednesday's daily close. The 14-day Relative Strength Index (RSI) flirts with the 50 level, which suggests that buyers are leaning in favor of the pair in the short term.”

“Buyers need to break the 100-day SMA at 1.0876 to extend the recovery towards the 1.0900 level. The next upside barrier for EUR/USD will be at the March 21 high at 1.0943. By On the contrary, the initial demand zone lies at the round figure of 1.0800, below which the April 3 low at 1.0764 will be tested. The line in the sand for Euro buyers is forecast at 1.0725, April low,” adds Dhwani.