NFP Forecast: US Nonfarm Payrolls growth set to ease down in June

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  • US Nonfarm Payrolls are expected to rise 190K in June, slowing from May’s 272K increase.
  • The United States Bureau of Labor Statistics will release the Employment report at 12:30 GMT.
  • The US Dollar awaits employment data after Fed Chair Jerome Powell’s dovish remarks on Tuesday.

With US Federal Reserve (Fed) Chairman Jerome Powell’s Sintra appearance out of the way, all eyes now remain on top-tier Nonfarm Payrolls (NFP) data for June, due on Friday at 12:30 GMT.

The Bureau of Labor Statistics (BLS) will release the US labor market data, which could offer cues on the timing of the Fed’s first interest-rate cut this year and the US Dollar’s (USD) next direction.

What to expect in the next Nonfarm Payrolls report?

The Nonfarm Payrolls report is set to show that the US economy created 190,000 jobs in June after having added 272,000 in May.

The Unemployment Rate will likely hold steady at 4.0% in the same period. Meanwhile, a closely-watched measure of wage inflation, Average Hourly Earnings, is seen increasing by 3.9% in the year through June following May’s growth of 4.1%.

Markets are set to analyze these key data sets closely, as they could provide a fresh guide to the possible timing of the Fed’s dovish pivot.

Markets scaled up their expectations for a Fed rate cut in September after Tuesday’s Chairman Jerome Powell’s commentary at the European Central Bank (ECB) Forum on Central Banking in Sintra.

Powell sounded quite optimistic about the recent encouraging inflation reports but said he needed more data before considering rate cuts. Markets perceived his acknowledgment of the progress in the disinflationary trend as dovish.

Meanwhile, the US private sector added 150,000 jobs in June, a modest decrease from the upwardly revised 157,000 figure in May, the ADP reported on Wednesday. The data missed the analysts’ estimates of a 160,000 job addition. It’s worth mentioning that NFP has outperformed ADP in nine out of the past ten months.

Fed Chair Powell’s dovish commentary, combined with weak US employment data, ramped up bets for a rate cut by the US central bank in September, with markets now seeing a 73% chance against a 64% probability seen early Tuesday.

Previewing the June employment situation report, BBH analysts said: “Bloomberg consensus is 190k vs. 272k in May, while its whisper number stands at 198k currently.  For reference, the average gain over the past 12 months is 232k. The unemployment rate is expected to remain steady at 4.0% even as the participation rate is expected to rise a tick to 62.6%.  With the labor market in better alignment, the pace of wage growth will be a bigger driver of Fed expectations. Average hourly earnings are forecast to rise 0.3% MoM, with the YoY rate expected to fall two ticks to 3.9.”

How will US June Nonfarm Payrolls affect EUR/USD?

The return of the doves smashed the US Dollar across the board alongside the US Treasury bond yields, driving the EUR/USD pair briefly above the 1.0800 threshold. Attention now turns to the US NFP report to affirm the loosening labor market conditions and the disinflationary trend in wage inflation.

A stronger-than-expected NFP headline figure, along with hot wage inflation data, could push back against the renewed bets of a September Fed rate cut, offering a fresh life to the US Dollar. This, in turn, could trigger a correction in the EUR/USD pair toward 1.0700. However, if the US employment data strongly indicates labor market slack, the Greenback could see a fresh leg down on a potential confirmation that the Fed will lower rates in September. In such a case, EUR/USD could surge past the 1.0850 level.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“The EUR/USD pair is battling at around 1.0790, where the critical 200-day Simple Moving Average (SMA) and the 100-day SMA coincide. The 14-day Relative Strength Index (RSI) sits above the 50 level, near 54, suggesting that upside potential remains intact.”

“Buyers need to find acceptance above the convergence of the 200-day and 100-day SMAs, for an extended recovery. The next topside barriers for EUR/USD will then be seen at the June 12 high of 1.0852 and the 1.0900 round figure. Conversely, the initial demand area is seen at 21-day SMA at 1.0746, below which the 1.0700 level will be tested en route to the June low of 1.0660,” Dhwani adds.

Euro PRICE This week

The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   -0.99% -0.95% 0.06% -0.45% -0.99% -0.40% 0.06%
EUR 0.99%   -0.19% 0.77% 0.23% -0.13% 0.28% 0.75%
GBP 0.95% 0.19%   0.94% 0.43% 0.07% 0.48% 0.94%
JPY -0.06% -0.77% -0.94%   -0.52% -1.00% -0.47% 0.02%
CAD 0.45% -0.23% -0.43% 0.52%   -0.50% 0.05% 0.52%
AUD 0.99% 0.13% -0.07% 1.00% 0.50%   0.41% 0.95%
NZD 0.40% -0.28% -0.48% 0.47% -0.05% -0.41%   0.49%
CHF -0.06% -0.75% -0.94% -0.02% -0.52% -0.95% -0.49%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

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