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Nonfarm Payrolls expected to increase by 170K in December – Crypto News
- 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 U6 Underemployment Rate
The U6 or underemployment rate, includes – in addition to the Unemployment Rate – anyone who wants to work but has given up looking for employment in the last year, as well as people working part-time who would like to work full-time. It is released by the US Bureau of Labor Statistics (BLS) and is considered a wider and more realistic labor market metric by many economists. Usually, a higher rate is seen in recessionary economies, while a lower rate is a symptom of growing economies. Generally, a decrease in the figure is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. The number isn’t usually market moving, as it depends on the Nonfarm Payrolls result and other data in the BLS report.
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.
