Nonfarm Payrolls set to grow moderately in September as markets mull bets of another big Fed rate cut
- US Nonfarm Payrolls are set to increase by 140K in September, similar to August’s gain of 142K.
- The United States labor data will be published by the Bureau of Labor Statistics on Friday at 12:30 GMT.
- The US jobs data could have a significant impact on the direction of the Fed interest rates and thus the US Dollar’s valuation.
The high-impact Nonfarm Payrolls (NFP) data from the United States (US) for September will be published by the Bureau of Labor Statistics (BLS) on Friday at 12:30 GMT.
The US labor market data is expected to significantly impact the US Dollar (USD) performance against its major rivals, as markets speculate about the size of the next Federal Reserve (Fed) interest rate cut in November.
What to expect in the next Nonfarm Payrolls report?
Economists expect the Nonfarm Payrolls report to show that the US economy added 140,000 jobs in September, following a job gain of 142,000 reported in August.
The Unemployment Rate is expected to stay unchanged at 4.2% in the same period. Further, a closely-watched measure of wage inflation, Average Hourly Earnings, is seen increasing by 3.8% in the year through September, maintaining the pace seen in August.
The September jobs data could reinforce the markets’ expectations of a 50 basis points (bps) rate cut at the November meeting even though Fed Chairman Jerome Powell pushed back against such expectations during his speech at the National Association for Business Economics (NABE) Annual Meeting in Nashville on Monday.
Powell said that “this is not a committee that feels like it’s in a hurry to cut rates quickly.” “If the economy performs as expected, that would mean two more cuts this year, both by a quarter-point, aligning with the forecasts officials penciled in at the September 18 meeting,” he added.
Previewing the September employment situation report, TD Securities analysts said: “We expect payrolls to pick up modestly in September improving to a four-month high after weaker net gains at 89k and 142k in July and August, respectively.”
“The UE rate likely stayed unchanged following August's one-tenth drop to 4.2%. We also look for wage growth to moderate, printing 0.2% MoM (3.8% YoY) after posting an unexpectedly strong 0.4% MoM gain last month,” the analysts said.
How will US September Nonfarm Payrolls affect EUR/USD?
In the run-up to the US NFP data release, markets are pricing in about a 37% chance that the Fed will lower rates by 50 bps in November, down from 53% seen at the start of the week, according to CME Group's FedWatch Tool.
Amidst fading bets for a large Fed rate cut in November and escalating conflict between Iran and Israel, the US Dollar sustains its recovery from over one-year lows against its major rivals.
The mixed Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) data and JOLTS Job Openings data failed to alter the market’s pricing for November’s rate cut move.
The ISM announced on Tuesday that its headline US Manufacturing Index steadied at 47.2 in September and remained deep in contraction while below the 47.5 forecast. US Job Openings rebounded to a three-month high in August, arriving at 8.04 million after declining to 7.71 million in July.
The Automatic Data Processing (ADP) reported on Wednesday that the US private sector employment increased by 143,000 jobs for September, accelerating from the upwardly revised 103,000 in August and better than the 120,000 estimate. Strong ADP jobs report eased concerns about the health of the US labor market, leaving room for an upside surprise in Friday’s payrolls data.
If the headline NFP reading shows a payroll growth below 100,000, it could suggest further cooldown in the US jobs market, and hence, reinforce the odds of a big cut in November. This could initiate a fresh US Dollar downtrend while pushing EUR/USD back to 1.1200.
Alternatively, a stronger-than-expected NFP figure alongside hot wage inflation data would fuel expectations that the Fed may opt for a 25 bps rate reduction, providing extra legs to the US Dollar recovery and smashing EUR/USD toward 1.0900.
Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“The EUR/USD pair has breached the critical 50-day Simple Moving Average (SMA) at 1.1044 amid the renewed downtrend. The 14-day Relative Strength Index (RSI) points south well below the 50 level, currently near 44, suggesting that sellers are likely to retain the upper hand in the near future.”
“On a daily candlestick closing below the 50-day SMA at 1.1044, sellers will flex their muscles toward the 100-day SMA support at 1.0928. Further down, the 200-day SMA at 1.0875 will be the last line of defense for buyers. Alternatively, they need to recapture the 21-day SMA at 1.1102 to negate the bearish pressure in the near term. Further up, the year-to-date (YTD) high of 1.1214 will be tested en route to the 1.1250 psychological barrier,” Dhwani adds.
Economic Indicator
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: Fri Oct 04, 2024 12:30
Frequency: Monthly
Consensus: 140K
Previous: 142K
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.
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.
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