- US Nonfarm Payrolls are forecast to rise by 170K in December after November’s 199K increase.
- The US jobs report could influence the market pricing of the Fed rate outlook and the US Dollar valuation.
- The United States employment data will be released by the Bureau of Labor Statistics at 13:30 GMT.
The high-impact Nonfarm Payrolls (NFP) data from the United States (US) will be published by the Bureau of Labor Statistics (BLS) on Friday at 13:30 GMT.
What to expect in the next Nonfarm Payrolls report?
The US labor market report is expected to show that the economy created 170,000 jobs in the last month of 2023, down from a job addition of 199,000 in November. The Unemployment Rate is seen ticking up to 3.8%. A closely-watched measure of wage inflation, Average Hourly Earnings, is forecast to retreat to 3.9% in the year through December, a tad down from the 4% increase registered in November.
The US labor market data is crucial to the US Federal Reserve (Fed) interest rate outlook for 2024, and thus it could have a significant impact on the US Dollar (USD) valuation.
Amidst cooling inflation in the US, markets price in that the Fed is done with its tightening cycle, expecting interest rate cuts as early as March. The probability for a March Fed rate cut currently stands about 65%, according to CME Group’s FedWatch Tool.
Fed rate cut bets rose substantially after the Fed’s revised Summary of Economic Projections (SEP) showed in December that policymakers forecasted a total of 75 basis points reduction in the policy rate. Moreover, Fed Chairman Jerome Powell acknowledged that officials have started to talk about when it will be appropriate to cut the policy rate. Powell further added that they are very focused on “not making the mistake of keeping rates too high too long.” Regarding the labor market conditions, “job gains have moderated but remain strong and the unemployment rate remains low,” the Fed said in the policy statement.
On a hawkish note, Chicago Fed President Austan Goolsbee and Cleveland Fed President Loretta Mester both argued in late December that the markets have gotten ahead of themselves on likely interest rate cuts. These comments, however, did little to nothing to alter the expectations of a March rate reduction.
Previewing December jobs report, TD Securities analysts said that they expect a steady 150,000–200,000 growth in Nonfarm Payrolls for the third straight month and added:
“We anticipate continued weakness in the information/tech and finance sectors, while government jobs likely stayed perky. We also look for the Unemployment Rate to rebound by a tenth after unexpectedly dropping to 3.7% in Nov. Wage growth likely printed 0.3% m/m.”
Meanwhile, private sector employment in the US rose by 164,000 in December and annual pay was up 5.4%, data published by Automatic Data Processing (ADP) showed on Thursday.
How will US November Nonfarm Payrolls affect EUR/USD?
The Nonfarm Payrolls, a significant indicator of the US labor market, will be published at 13:30 GMT. EUR/USD gained more than 1% in December and touched its highest level since July at 1.1140 before staging a technical correction to begin 2024. The US employment data could trigger a big reaction and help investors determine the next directional bias for the main currency pair.
An encouraging NFP headline print, between 200,000 and 250,000, combined with an elevated wage inflation reading could prompt investors to reassess Fed rate cut bets, adding legs to the ongoing US Dollar recovery while weighing on EUR/USD. Conversely, the USD could come under renewed selling pressure should the data disappoint and affirm dovish Fed prospects. Given the market positioning, however, a USD sell-off on a weak NFP figure could remain short-lived.
Eren Sengezer, Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“EUR/USD faces immediate support at 1.0930-1.0920, where the Fibonacci 50% retracement level of the latest uptrend and the 200-day Simple Moving Average (SMA) are located. In case the pair starts using that area as resistance, technical sellers could remain interested. In this scenario, 1.0880 (Fibonacci 61.8% retracement) and 1.0830 (static level) could be set as the next bearish targets.
On the upside, 1.0970-1.0980 (100-day SMA, Fibonacci 38.2% retracement) aligns as immediate resistance ahead of 1.1020-1.1030 (20-day SMA, Fibonacci 23.6% retracement) and 1.1120 (end-point of the latest uptrend).”
Economic Indicator
United States Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the Unemployment Rate are as relevant as the headline figure. The market’s reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
Read more.
Next release: 01/05/2024 13:30:00 GMT
Frequency: Monthly
Source: US Bureau of Labor Statistics
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
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.
Source: https://www.fxstreet.com/news/us-nfp-forecast-nonfarm-payrolls-expected-to-grow-below-200k-in-december-for-third-straight-month-202401050500