The data published by the US Bureau of Labor Statistics (BLS) revealed on Friday that Nonfarm Payrolls rose by 253,000 in April. This reading came in better than the market expectation for an increase of 179,000. On a negative note, March's reading of 236,000 got revised lower to 165,000.
Further details of the report revealed that the Unemployment Rate edged lower to 3.4% from 3.5 and the annual wage inflation, as measured by the Average Hourly Earnings, rose to 4.4% from 4.3%. Finally, the Labor Force Participation Rate remained unchanged at 62.6%, compared to the market expectation of 62.5%.
"The number of persons not in the labor force who currently want a job increased by 346,000 over the month to 5.3 million," the BLS noted in its press release. "These individuals were not counted as unemployed because they were not actively looking for work during the 4 weeks preceding the survey or were unavailable to take a job."
Market reaction
With the initial reaction to the upbeat April jobs report, the US Dollar gathered strength against its rivals. As of writing, the US Dollar Index was up 0.2% on the day at 101.65.
Follow our live coverage of market reaction to the US jobs report.
The benchmark 10-year US Treasury bond yield also gained traction and rose by 2% in a matter of minutes after the release. Despite the positive reaction in US yields, the market pricing of the Federal Reserve's (Fed) rate outlook remains virtually unchanged with the CME Group FedWatch Tool showing an only 4% probability of one more 25 basis points Fed rate hike in June.
Meanwhile, Wall Street's main indexes remain on track to open in positive territory with US stock index futures gaining between 0.5% and 0.6% ahead of the opening bell.
United States Nonfarm Payrolls
The Nonfarm Payrolls released by the US Bureau of Labor Statistics presents the number of new jobs created during the previous month in all non-agricultural businesses. The monthly changes in payrolls can be extremely volatile due to their high relation with economic policy decisions made by the Federal Reserve. The number is also subject to strong reviews in the upcoming months, and those reviews also tend to trigger volatility in the Forex board. Generally speaking, a high reading is seen as positive (or bullish) for the USD, while a low reading is seen as negative (or bearish), although previous months' reviews and the unemployment rate are as relevant as the headline figure, and therefore market's reaction depends on how the market assets them all. Read more.
Next release: Fri June 2nd, 2023 12:30 GMT
Frequency: Monthly
Source: US Bureau of Labor Statistics
Why it matters to traders?
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 report is expected to show US employers added 179,000 jobs in April.
- US Dollar could react to wage inflation component, the Average Hourly Earnings.
- The Bureau of Labor Statistics is set to report an Unemployment Rate of 3.5% in April.
The Nonfarm Payrolls (NFP) data will be released by the Bureau of Labor Statistics (BLS) this Friday at 12:30 GMT. The NFP release is expected to show job gains of 179,000 in April slowing from the 236,000 increase recorded in March.
The US Dollar (USD) has been struggling to find demand in the second half of the week with dovish Federal Reserve (Fed) bets dominating the financial markets. April jobs report is likely to trigger the next big action in the USD due to its potential impact on the Fed’s policy outlook.
Although the Fed raised its policy rate by 25 basis points (bps) to the range of 5-5.25% as expected, it scrapped the comment in the policy statement that read “some additional policy firming may be appropriate. Commenting on the labor market conditions in the post-meeting press conference, FOMC Chairman Jerome Powell noted that there were some signs suggesting that supply and demand were coming back into better balance. "There are no promises but it's possible we can continue to have labor market cooling without big increases in unemployment," Powell added.
What to expect in the next Nonfarm Payrolls report?
The highlight in Friday's United States (US) economic docket is the release of the closely-watched US monthly jobs report data for April. Nonfarm Payrolls expectations are that the economy added 179K jobs during the reported month, down from the better-than-expected growth of 236K in March. The Unemployment Rate is expected to remain unchanged at 3.5% in the fourth month of this year.
Investors will also pay close attention to the Average Hourly Earnings, which is forecast to hold steady at 4.2% on a yearly basis, and the Labor Force Participation readings in the report.
Analysts at Wells Fargo expect payrolls growth to continue to softer at the beginning of the second quarter: “Slowly bending, not breaking, has so far been the story of the labor market this year. That is unlikely to change with April's employment report. In March, nonfarm payrolls rose by 236K, the weakest print since December 2020. Signs were more encouraging in the separate household survey, where employment rose by 577K, causing the unemployment rate to tick back down to 3.5%. The labor force participation rate also rose for a fourth straight month.”
When will US February Nonfarm Payrolls report be released and how could it affect EUR/USD?
The Nonfarm Payrolls report is scheduled for release at 12:30 GMT, on May 5. With the US Dollar staying dangerously close to its weakest level against the Euro in nearly a year in the Fed aftermath, market participants will pay close attention to the labor market data to figure out whether EUR/USD could extend its rally.
In case the report reveals that labor market conditions remained tight with an NFP increase at-or-above 250K combined with a hot wage inflation print, market participants could re-assess the probability of one more 25 basis points (bps) Fed rate hike in June. In that scenario, the USD should gather strength heading into the weekend and cause EUR/USD to erase a portion of its weekly losses. It’s worth noting that the CME Group FedWatch Tool shows that the probability of a June rate increase less than 5%.
On the other hand, a disappointing NFP print, close to 100K, should confirm a pause in the Fed’s tightening cycle and even revive expectations for a rate cut later in the year. The USD is likely to come under renewed bearish pressure in such a case and provide a boost to EUR/USD during the American trading hours on Friday.
Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair and writes: “Euro bulls appear hopeful so long as they hold above the upward-sloping 21-Day Moving Average (DMA) at 1.0985. The 14-day Relative Strength Index (RSI) is pointing north above the midline, adding credence to the upside bias.”
Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, Euro buyers need acceptance above the recent range highs around 1.1090 to resume the uptrend Ahead of that, EUR/USD needs to find a strong foothold above the 1.1050 psychological mark. Alternatively, immediate support awaits at the bullish 21 DMA, below which the weekly low of 1.0942 could be tested before bears gear up for a test of the ascending 50 DMA at 1.0839.
Nonfarm Payrolls related content
- There may be further weakness ahead for the USD – HSBC
- Pound Sterling establishes foothold above 1.2600 prior to Nonfarm Payrolls
- The case for a weaker Dollar is building – ING
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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