- US Nonfarm Payrolls increased by 187,000 in August, above the market expectations of 170,000.
- Bitcoin and altcoin traders can expect a sell-off in BTC in the short- term, in response to the hot employment figures.
- The Federal Reserve’s double mandate requires keeping employment and inflation in check, the NFP data could therefore influence the upcoming interest rate hike decision.
The Nonfarm Payrolls data is closely scrutinized by the US Federal Reserve to assess the impact of its monetary policy. The US Central Bank is focused on keeping employment and inflation in check, the heating job market is therefore likely to influence the Fed’s decision to hike interest rates in September.
Bitcoin traders’ reaction to the release of NFP data is likely to be short-lived, market participants can expect volatility in the American trading session.
Also read: Could US Nonfarm Payrolls provide directional cues Bitcoin needs?
Bitcoin price experiences downside volatility, knee-jerk reaction to NFP data
Bitcoin price tested support at $26,000 as market participants displayed a knee-jerk reaction to the release of Nonfarm Payrolls data for August. 187,000 Nonfarm Payrolls were added in the month of August, against the market’s expectations of 170,000.
A heated job market is likely to factor in, when the Federal Reserve assesses the impact of its monetary policy. To promote effectively the goals of maximum employment and stable prices, there is a likelihood of an interest rate hike in September.
Moreover, the impact of the data release on Bitcoin is likely to be short-lived, as noted in previous instances. Participants can expect higher volatility in the American trading session in BTC price.
At the time of writing, Bitcoin price is $26,023 on Binance. A short-term sell-off, or BTC sweeping lows below $26,000 is likely, as traders digest the employment numbers for August 2023.
BTC/USDT five-minute price chart on Binance
NonFarm Payrolls FAQs
What are Nonfarm Payrolls?
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.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
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.
How does Nonfarm Payrolls affect the US Dollar?
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.
How does Nonfarm Payrolls affect Gold?
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.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
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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