US Nonfarm Payrolls soar by 336,000 in September vs. 170,000 forecast

Nonfarm Payrolls (NFP) in the US rose by 336,000 in September, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading came in much higher than the market expectation of 170,000. The 187,000 increase recorded in August also got revised higher to 227,000.

The Unemployment Rate held steady at 3.8% and the Labor Force Participation remained unchanged at 62.8%. Other details of the jobs report revealed that the annual wage inflation, as measured by the changed in Average Hourly Earnings, edged lower to 4.2% from 4.3%.

"The change in total nonfarm payroll employment for July was revised up by 79,000, from +157,000 to +236,000, and the change for August was revised up by 40,000, from +187,000 to +227,000," the BLS noted in the press release. "With these revisions, employment in July and August combined is 119,000 higher than previously reported."

Market reaction to September jobs report

The US Dollar (USD) gathered strength against its major rivals with the immediate reaction. At the time of press, the US Dollar Index was up 0.45% on a daily basis at 106.80. The 10-year US Treasury bond yield also gained traction and was last seen rising nearly 3% on the day at 4.85%.

Commenting on the September jobs report, "the leg may have been off the accelerator, but it is on it once again – September's Nonfarm Payrolls shocked to the upside with a whopping gain of 336,000," said FXStreet Analyst Yohay Elam.

"They provide enough fuel for the Federal Reserve (Fed) to keep its rates higher for longer – and perhaps even a rate hike just after Halloween. September's employment report boosts the US Dollar. Any meaningful recovery in Gold and stocks will have to wait," Yohay added.

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This section below was published as a preview of the September jobs report at 06:00 GMT.

• US Nonfarm Payrolls are set to rise by 170K in September, down from the 187K reported in July.
• US Dollar braces for a volatility spike on headline NFP and Average Hourly Earnings data.
• The Unemployment Rate in the United States is seen modestly lower at 3.7% in September.

Expectations of a final interest-rate hike by the US Federal Reserve (Fed) this quarter were reinforced after US job openings unexpectedly rose by the most in over two years to 9.610 million in August. The JOLTS Job Openings data pointed to a persistently tight labor market in the United States that could provide the Fed some leeway for more tightening.

Following the September policy meeting, several Fed policymakers have supported the narrative of the ‘higher rates for longer’, as the US economy showed encouraging signs of resilience. 

The US Dollar Index capitalized on the hawkish Fed rhetoric and hit an 11-month peak above 107.00 while the US Treasury bond yields challenged 16-year highs. 

However, odds of a Fed rate hike in November dropped to 23% from about 31%, after downbeat US labor market data released on Wednesday, triggering a long-due correction in the US Dollar and the US Treasury bond yields. 

The latest Automatic Data Processing (ADP) report showed that the US private sector added just 89,000 in September, down from an upwardly revised 180,000 in August and far below the 153,000 estimate. US Institute for Supply Management (ISM) Services PMI fell from 54.5 to 53.6 in September, although it matched expectations. 

What to expect in the next Nonfarm Payrolls report?

Friday's Nonfarm Payrolls data for September should help clarify if the labor market is still tight, especially after a strong JOLTS report and softer private payrolls data, compelling the Federal Reserve to raise interest rates next month.

The Nonfarm Payrolls data is likely to show that the US economy added 170K jobs last month as against a job gain of 187K jobs in August. The Unemployment Rate is seen a tad lower at 3.7% in the reported period.

Average Hourly Earnings will also garner attention. The measure of wage inflation tends to have a significant impact on the Fed’s monetary policy decision-making. Average Hourly Earnings are seen rising 4.3% on a yearly basis in September, at the same pace as seen in August. On a monthly basis, Average Hourly Earnings are expected to edge 0.3% higher in September when compared to a 0.2% increase in August.

Analysts at TD Securities noted, “in terms of payrolls, we are looking for an above-market rebound to 210k above market expectations of 165k. Friday's report will follow three consecutive prints under the 200k mark. We are also expecting the unemployment rate to stay unchanged at 3.8%.”

When will US September Nonfarm Payrolls data be released and how could it affect EUR/USD?

The Nonfarm Payrolls indicator, part of the US labor market report, will be published at 12:30 GMT on Friday. EUR/USD is attempting a tepid recovery from a ten-month low of 1.0448 set on Tuesday, as the monetary policy and macroeconomic divergences between the Fed and the European Central Bank (ECB) widen.

An upbeat NFP headline print and hot wage inflation data would strengthen market wagers for one more Fed rate hike by year-end, providing an extra leg to the ongoing upsurge in the US Dollar. EUR/USD could test levels below 1.0400.

On the other hand, the US Dollar could see a sharp correction if the data points to loosening labor market conditions and smashes hopes for any further rate hike by the Fed this year. In such a case, EUR/USD could stage a solid recovery toward 1.0650.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair and explains: “The main currency pair has moved away from multi-month troughs but the bearish potential remains intact, as the 14-day Relative Strength Index (RSI) continues to hover below the midline. Failure to find acceptance above the 1.0600 round level on its road to recovery will trigger a fresh downswing toward the 1.0448 YTD low. Deeper declines will then target the 1.0400 round figure.”

“On the flip side, if the 1.0600 static resistance is taken out, Euro buyers will challenge the downward-sloping 21-day Simple Moving Average (SMA) at 1.0616. The next relevant upside barrier is envisioned near 1.0670, where the September 21 and 22 highs align,” Dhwani adds.