The US Dollar Index (DXY) balked on Friday, turning lower and shedding one-quarter of one percent on the day, but ultimately ended the first trading week of 2025 on the high side, gaining 0.87% from Monday’s opening bids. Markets kicked off the new trading year on a wobbly risk sentiment stance, keeping the safe haven US Dollar bid and chalking the DXY into a fifth consecutive weekly gain. Next week will kick off on a quiet note, ramping up into next Friday’s US Nonfarm Payrolls (NFP) jobs data dump, kicking off 2025’s monthly cycle of US labor figures.
EUR/USD caught a last-minute bid to end Friday near the 1.0300 handle after a week of steady declines. The Euro lost nearly 1.2% against the Greenback through the week, tumbling through the 1.0400 handle and tapping a 26-month low. German and pan-European HCOB inflation figures are due on Monday and Tuesday, respectively, and both measures are expected to tick upward slightly.
GBP/USD ended the week with a battle to hang onto the 1.2400 handle, with the pair shedding around 1.2% on the week and closing below the 1.2500 level for the first time since April of 2024. UK data remains thin on the economic calendar next week, but Cable traders will be keeping an eye out for BRC Like-For-Like Retail Sales on Tuesday, as well as any murmurings from the Bank of England (BoE).
AUD/USD found a price floor near the 0.6200 handle this week, chalking in a near-term bullish turnaround point and ending the week flat after a brief dip into fresh two-year lows near 0.6180. Judo Bank Australian Purchasing Managers Index (PMI) figures for December will kick off the week’s Aussie data docket early Monday, followed by key Australian Retail Sales figures on Thursday. Chinese Consumer Price Index (CPI) inflation will print early Friday, which could see knock-on volatility in Aussie markets to round out the trading week.
USD/JPY churned during the first trading week of the year, ending down half of a percent and snapping the Greenback’s four-week win streak against the Yen. Japanese data remains limited next week, leaving the pair to grapple with broader market flows and next week’s looming US NFP print. Yen traders will be forced to look ahead wistfully to the Bank of Japan’s (BoJ) next rate call, due far ahead on January 24.
Key events to watch next week
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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