Forex Today: Late-week holiday gives way to another NFP Friday
US market flows were hobbled on Thursday, tripping up trade volumes as the calendar rounds the corner into another US Nonfarm Payrolls (NFP) Friday.
Here’s what you need to know heading into Friday, December 10:
The US Dollar Index (DXY) stepped tentatively higher on Thursday, driven by an overall tepid market outlook with American markets shuttered in a day of mourning in observance of the passing of former President Jimmy Carter, who passed away in December at the age of 100. Maretk participants got a reprieve from the week’s hectic US data release schedule, but another round of Friday NFP jobs figures are looming ahead, further constraining already-tight market volumes. US jobs additions are expected to ease slightly in December, while wage growth is forecast to hold on the flat side, and even ease in the monthly figures. Beats in wage and jobs growth could spell further chaos for broad-market rate cut hopes looking forward into 2025, as high wages keep infaltion expectations on the high end and still-strong employment figures mean the Federal Reserve (Fed) will have little reason to move policy rates.
EUR/USD continued to grind through chart paper near the 1.0300 handle on Thursday, sending the Euro into a third straight day of tepid losses as markets coil ahead of US jobs figures. Pan-European Retail Sales figures came in well below expectations in November, further crimping bullish potential in the Euro.
GBP/USD likewise dumped into fresh 14-month lows, driven further into the basement after UK Like-For-Like Retail Sales fell much steeper than expected in December, contracting by a full percent MoM and flubbing the median market forecast for a mild recovery, though the figure was always expected to remain in contraction territory.
AUD/USD continues to churn near the 0.6200 handle. Australian Retail Sales rebounded in November, climbing to 0.8% MoM, but still coming in below the forecast 1.0% increase. Further taking wind out of Aussie sales werte Chinese Consumer Price Index (CPI) inflation figures for December, which perfectly met expectations, as managed data almost always tends to do, but still easing to a scant 0.1% YoY as the Chinese economic engine sputters and wide market expectations of rising Chinese consumption demand fail to materialize.
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 Jan 10, 2025 13:30
Frequency: Monthly
Consensus: 160K
Previous: 227K
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.
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