November Nonfarm Payrolls Forecast: NFP data to test strength of US labor market as loosening signs mount

By News Room On Dec 8, 2023

US Nonfarm Payrolls are likely to rise by 180K in November after October’s 150K increase.
The US Dollar looks to the headline NFP and Average Hourly Earnings data for a fresh directional impetus.
The United States employment data will be released by the Bureau of Labor Statistics at 13:30 GMT.

The high-impact Nonfarm Payrolls (NFP) data from the United States (US) will be published by the Bureau of Labor Statistics (BLS) on Friday at 13:30 GMT.

What to expect in the next Nonfarm Payrolls report?

The US labor market report is likely to show that the economy created 180K jobs last month, up from a job addition of 150K reported in October. The Unemployment Rate is set to remain unchanged at 3.9%.

A closely-watched measure of wage inflation, Average Hourly Earnings, is expected to inch higher by 4.0% in the year through November, a tad down from October’s 4.1% increase. On a monthly basis, Average Hourly Earnings are forecast to rise 0.3% in the reported month, compared to a 0.2% increase in October.

The US labor market data is crucial to the US Federal Reserve (Fed) interest rate outlook for 2024 and thus it has a significant impact on the US Dollar (USD) valuation.

Amidst cooling inflation in the US, markets price in that the Fed is done with its tightening cycle, expecting interest rate cuts as early as March. The probability for a March Fed rate cut currently stands at 60%, according to CME Group’s FedWatch Tool.

The Fed rate cut bets rose substantially after Fed Governor Christopher Waller, a known hawk, flagged a policy pivot, spelling doom for the US Dollar and for US Treasury bond yields.

“If the decline in inflation continues for several more months … three months, four months, five months … we could start lowering the policy rate just because inflation is lower,” Waller said on November 28.

The October Core PCE Price Index data also bolstered dovish Fed expectations. The Fed’s preferred inflation gauge rose 3.5% on the year, moderating from a 3.7% reading while holding well above the Fed’s 2.0% target.

In his recent public appearance, Fed Chair Jerome Powell tried hard to push back against expectations of interest rate cuts next year, but markets didn’t buy into his hawkish rhetoric. Powell said, “it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance or to speculate on when policy might ease.” “We are prepared to tighten policy further if it becomes appropriate to do so,” he added.

On Wednesday, Automatic Data Processing (ADP) said the US private sector payrolls rose 103K in November, compared with October’s downward revision of 106K while missing the estimate of 130K. The Job Openings and Labor Turnover Summary (JOLTS) report showed that the number of job openings on the last business day of October slid to more than a 2-1/2-year low of 8.733 million.

This week’s US employment data signaled loosening labor market conditions, which if backed by a weak November Nonfarm Payrolls data on Friday could bolster Fed rate cut bets.

Previewing the US labor market data, analysts at TD Securities noted: “Job gains were likely perky in November, with payrolls rebounding above the 200k mark after an October report that surprised expectations to the downside. Gains will partly reflect the ending of the UAW strikes, which had a material impact on manufacturing jobs in the last report. We also look for the UE rate to fall back by a tenth to 3.8%, and for wage growth to print 0.3% m/m.”

How will US November Nonfarm Payrolls affect EUR/USD?

The Nonfarm Payrolls, a significant indicator of the US labor market, will be published at 13:30 GMT. EUR/USD is meandering in the 1.07s in the run-up to the NFP showdown. The US employment data will determine the next directional bias for the main currency pair.

An encouraging NFP headline print and elevated wage inflation could prompt investors to reassess Fed rate cut bets, adding legs to the ongoing US Dollar recovery while dragging EUR/USD back toward 1.0700. Conversely, the US Dollar is expected to see a fresh downswing should the data disappoint and affirm dovish Fed prospects. In such a case, EUR/USD could stage a meaningful turnaround toward 1.1000.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for trading EUR/USD on the NFP data release. “The main currency pair has broken through all major support levels as the previous week’s bearish momentum sustains ahead of Friday’s payrolls release. The 14-day Relative Strength Index (RSI) indicator is pointing lower below the midline, supporting the recent downtrend.”

Should the selling pressure intensify, EUR/USD could challenge the 50-day Simple Moving Average (SMA) support at 1.0700, below which a drop toward the 1.0650 psychological level cannot be ruled out. The next relevant cushion is seen at the November low of 1.0517. Conversely, Euro buyers need to recapture the 200-day SMA support-turned-resistance at 1.0825 to cement a sustained recovery toward the 1.0900 round level. However, the 21-day SMA at 1.0855 could be a tough nut to crack beforehand,” Dhwani adds.

Economic Indicator

United States Average Hourly Earnings (YoY)

The Average Hourly Earnings gauge, released by the US Bureau of Labor Statistics, is a significant indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to it when setting interest rates. A high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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