The United States (US) Bureau of Labor Statistics (BLS) will release the Nonfarm Payrolls (NFP) data for April on Friday at 12:30 GMT.
Investors will scrutinize the underlying details of the employment report to assess whether the Federal Reserve (Fed) is likely to consider an interest-rate cut later in the year.
What to expect from the next Nonfarm Payrolls report?
Investors expect NFP to rise by 62K following the surprisingly strong 178K increase recorded in March. The Unemployment Rate is expected to remain unchanged at 4.3%, while the annual wage inflation, as measured by the change in the Average Hourly Earnings, is projected to rise to 3.8% from 3.5%.
Previewing the employment report, TD Securities analysts note that they expect to see signs of stabilization in the labor market after three volatile months.
“NFP likely increased 80K, with 85K private gains and 5K government job losses. Healthcare and leisure & hospitality will likely support most of the improvement. The Unemployment Rate rate should continue showing stabilization at 4.3%. We also expect Average Hourly Earnings to stay modest at 0.2% m/m, with the y/y moving up to 3.7%,” they add.
Automatic Data Processing (ADP) reported earlier in the week that employment in the private sector rose by 109K in April. This print followed the 61K (revised from 62K) increase reported in March. Assessing the report’s findings, “small and large employers are hiring, but we’re seeing softness in the middle,” said Dr. Nela Richardson, chief economist at ADP. Meanwhile, the Employment Index of the Institute for Supply Management’s (ISM) Services Purchasing Managers’ Index (PMI) survey improved to 48 in April from 45.2 in March, reflecting an ongoing contraction in the service sector payrolls, albeit at a softening pace.
Economic Indicator
Unemployment Rate
The Unemployment Rate, released by the US Bureau of Labor Statistics (BLS), is the percentage of the total civilian labor force that is not in paid employment but is actively seeking employment. The rate is usually higher in recessionary economies compared to economies that are growing. Generally, a decrease in the Unemployment Rate is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. That said, the number by itself usually can’t determine the direction of the next market move, as this will also depend on the headline Nonfarm Payroll reading, and the other data in the BLS report.
How will the US March Nonfarm Payrolls affect EUR/USD?
The US Dollar (USD) has been struggling to stay resilient against its rivals since the beginning of May, even though the Federal Reserve’s (Fed) April policy meeting delivered a hawkish surprise, with three policymakers dissenting against the inclusion of an easing bias within the policy statement. Improving risk mood on easing geopolitical tensions in the Middle East and suspected foreign exchange market interventions by Japan emerge as primary drivers behind the USD weakness.
In the post-meeting press conference, Fed Chair Jerome Powell acknowledged that the labor demand has clearly softened but refrained from steering away from a neutral guidance because of inflation risks. “Policy is not a preset course,” Powell added, and reiterated that they are in a good place to move in either direction. In the meantime, Chicago Fed President Austan Goolsbee argued that gains in payrolls are not a good measure of labor slack anymore and noted that the labor market is “stable but not great.”
According to the CME FedWatch Tool, markets are currently pricing in about a 70% probability that the Fed policy rate will remain unchanged at the range of 3.5%-3.75% by the end of 2026. They also see a 13% chance of a 25 basis points (bps) hike and a nearly 17% odds of a 25 bps cut.
A significant negative surprise, a reading below 30K, in the headline NFP print, especially if combined with an uptick in the Unemployment Rate, could revive expectations for an interest rate cut by year-end and cause the USD to come under selling pressure with the immediate reaction.
Conversely, an upbeat NFP print, near or above the market expectation, could cause investors to refrain from pricing in policy easing later this year, as healthy labor market conditions are likely to allow Fed policymakers to take their time to assess the inflation dynamics before deciding on the next step. In this scenario, the USD could stay resilient against its peers and limit EUR/USD’s upside. However, even in this case, a strong USD rally could be hard to come by if markets remain risk-positive heading into the weekend.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“EUR/USD’s near-term technical outlook points to a bullish tilt. The Relative Strength Index (RSI) indicator on the daily chart rises toward 60 and the pair holds comfortably above the 100-day and the 200-day Simple Moving Averages (SMA).”
“EUR/USD could face the next strong resistance area at 1.1800-1.1810, where the upper hand of the Bollinger Band and the Fibonacci 61.8% retracement of the February-April downtrend align. If the pair manages to clear this level, 1.1900-1.1910 (round level, Fibonacci 78.6% retracement) could be seen as the next hurdle before 1.2000 (psychological level, round level).”
“On the downside, an important support area seems to have formed at 1.1710-1.1680 (100-day SMA, 200-day SMA). In case EUR/USD retreats below this region and starts using it as resistance, 1.1650 (Fibonacci 38.2% retracement) could act as an interim support level before 1.1560 (Fibonacci 23.6% retracement).”
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
