- Higher-than-expected US Jobless Claims figures raised concerns over the US labor market.
- Markets await Nonfarm Payrolls, Unemployment Rate, and Average Hourly Earnings on Friday.
- The odds of a rate cut in June remain high.
The US Dollar Index (DXY) is mildly lower on Thursday and presently trading around 104. Mainly driven by weak weekly Initial Jobless Claims figures. The focus is set on Friday’s Nonfarm Payrolls where investors will get a clearer picture of the labor market.
The US labor market remains resilient despite the weak figures as well as the overall economy, with little signs of a slowdown. In case the economy doesn’t show conclusive evidence of cooling down, the Fed might consider delaying the start of the interest rate easing cycle.
Daily digest market movers: DXY extends losses on weal labor market figures
- Weekly unemployment claims in the US reached 221K for the week ending March 30.
- The reported claims exceeded estimates of 214K and surpassed the previous week’s figure of 212K.
- Following a slowdown in the US service sector, the Federal Reserve remains cautious but isn’t ruling out three cuts in 2024.
- US Treasury bond yields show a slight rise with 2-year, 5-year and 10-year bonds standing at 4.68%, 4.34%, and 4.36%, respectively.
- Investors await key labor market reports from the US, including March’s Nonfarm Payrolls, Unemployment Rate and Average Hourly Earnings data.
- These reports will crucially impact the US Dollar as they shape expectations for the next Fed meetings.
DXY technical analysis: DXY displays mixed signals with bears’ tentative clawback
The indicators on the daily chart reflect a duel between the bulls and the bears. The Relative Strength Index (RSI) is on a negative slope but in positive territory, hinting that buying momentum is losing strength. However, it is not completely gone just yet.
The Moving Average Convergence Divergence (MACD) shows decreasing green bars, implying the potential for a bearish reversal, but it still needs to cross into negative territory for a credible sell signal.
Despite these bearish signals, the pair is comfortably placed above its 20,100 and 200-day Simple Moving Averages (SMAs), pointing out that the underlying trend remains in favor of the bulls.
Nonfarm Payrolls FAQs
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.
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.
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.
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.
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.
Read the full article here