Breaking News

How Will Nonfarm Payrolls Impact The Dollar?

By Kathy LienForexDec 08, 2017 02:00
How Will Nonfarm Payrolls Impact The Dollar?
By Kathy Lien   |  Dec 08, 2017 02:00
Saved. See Saved Items.
This article has already been saved in your Saved Items

By Kathy Lien, Managing Director of FX Strategy for BK Asset Management.

The U.S. nonfarm payrolls report is one of the most important pieces of data scheduled for release this week and it will play a major role in shaping expectations for Wednesday’s Federal Reserve meeting. While the U.S. dollar traded higher against most of the major currencies Thursday, its cautious rally over the past week, particularly against the Japanese yen, is a sign of the market’s lack of confidence in Friday’s report. The Fed is widely expected to raise interest rates and the real question is where they go from there. Will Janet Yellen keep the Fed on a tightening track, hinting of further moves to come? Or will she take a step back and leave Powell with a clean slate? That’s what investors will be thinking about after they see Friday’s jobs report. Strong job growth accompanied by a solid increase in wages could go a long way in boosting expectations for 2018 tightening. Modest job growth accompanied by subdued wage gains will keep investors skeptical of Yellen’s intentions. Either way, as this is the final NFP report before this year’s last Federal Reserve meeting, it will undoubtedly have a significant impact on the greenback.

Unfortunately, when it comes to this month’s jobs report, the risk of miss is greater than the possibility of a beat, which means the dollar could give up its gains at the end of the week.
Economists are looking for job growth to slow to 195K from 261K in November, which is not a big deal considering that anything close to 200K is a strong number. However job growth could be significantly lower than 200K according to some other labor-market indicators. In particular, ADP reported weaker private payroll growth, job growth slowed according to the manufacturing and non-manufacturing ISM reports, Challenger reported a sharp rise in layoffs, the 4-week average of jobless claims increased and the same is true for continuing claims. The only argument in favor of stronger job growth is the consumer confidence index, which ticked higher but improvement was countered by the University of Michigan’s report that sentiment declined. Yet the pace of average hourly earnings growth and the unemployment rate will be what matters the most on Friday. If wage growth slows and the unemployment rate ticks up, it will offset any healthy payroll rise. By the same token, if job growth is between 150K and 200K but average hourly earnings meet the market’s 0.3% forecast and the unemployment rate holds steady at 4.1%, the dollar could recover any initial decline quickly to end the day higher. The recent consolidation in USD/JPY means that pair will be particularly sensitive to the outcome of tomorrow’s report.

Here’s a look at how the arguments for stronger vs. weaker November payrolls report stack up:

Arguments Favoring Stronger Payrolls

  1. Consumer Confidence Index Rises to 129.5 from 126.2

Arguments Favoring Weaker Payrolls

  1. ADP Drops to 190K from 235K
  2. Employment Component of Non-Manufacturing ISM drops to 55.3 from 57.5
  3. Employment Component of Manufacturing ISM Drops to 59.7 from 59.8
  4. University of Michigan Consumer Sentiment Index Tumbles to 98.5 from 100.7
  5. Challenger Reports 30% Rise in Layoffs in November
  6. 4 -Week Average Jobless Claims Rises to 241.5K from 232K
  7. Continuing Claims Rises to 1.908M from 1.868M

With the EU’s 48-hour Brexit deal deadline looming, it should be no surprise that sterling experienced the greatest intraday volatility Thursday. At the very start of the NY session, GBP/USD – which had been trading above 1.34 – U-turned and dropped 100 pips in less than hour. It then stabilized and within that same time frame rebounded approximately 80 pips and eventually ended the day in positive territory. There was very little rhyme or reason to this rollercoaster ride, which was sparked by nothing more than rumors and hope. Investors are worried that the UK will not be able to meet the EU’s pre-Summit deadline but as talks with the DUP continue, they are still hopeful. Calling this a tricky situation is an understatement and while the European Commission said Thursday that the final deadline could be as late as Sunday, Prime Minister May will be racing against the clock. Unless a deal is announced on Friday, we expect sterling to resume its slide as investors square-up before the weekend.

Although the euro ended the day unchanged against the greenback, 5 days have past since we’ve seen a meaningful rally in the single currency.
An unexpected fall in German industrial production contributed to EUR/USD’s underperformance. With the currency pair finding its way below the 20- and 100-day SMA, we could foresee a move down to 1.1750 before Friday’s NFP release. We don’t expect much help from Germany’s trade and current account surpluses, which are expected to have shrunk in October. After that, the EUR/USD’s direction will be determined exclusively by the market’s reaction to the U.S. jobs report so there’s scope for an upside or downside move depending on the outcome.

All 3 of Thursday's commodity currencies traded lower against the greenback with the Australian dollar slipping to its weakest level since June.
AUD extended its losses after a disappointing trade balance report. According to our colleague Boris Schlossberg, the data "fell woefully short of expectations coming in at 0.1B versus 1.4B eyed. The sharp falloff in exports indicates that demand from China may be tapering and that does not bode well for the unit long term.” The New Zealand dollar followed the Australian dollar lower and looking ahead, China’s November trade balance report could have a significant impact on both currencies. Despite higher oil prices, a decline in the IVEY PMI index and sharp rise in Canadian building permits, USD/CAD extended Wednesday’s post Bank of Canada gains.

How Will Nonfarm Payrolls Impact The Dollar?

Related Articles

How Will Nonfarm Payrolls Impact The Dollar?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email