Forex Today: Markets turn attention from Middle East to Nonfarm Payrolls
Here is what you need to know on Friday, August 7:
The US Dollar (USD) turns eerily quiet early Friday as investors refrain from taking large positions ahead of the highly-anticipated July employment report, which will feature the Unemployment Rate, Nonfarm Payrolls and wage inflation figures. Statistics Canada will also publish labor makret data for July later in the day.
US Dollar Price This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.24% | 0.34% | 0.79% | 0.08% | 0.09% | 0.56% | 0.66% | |
| EUR | -0.24% | 0.11% | 0.57% | -0.15% | -0.07% | 0.33% | 0.43% | |
| GBP | -0.34% | -0.11% | 0.11% | -0.26% | -0.16% | 0.22% | 0.31% | |
| JPY | -0.79% | -0.57% | -0.11% | -0.63% | -0.55% | -0.11% | -0.03% | |
| CAD | -0.08% | 0.15% | 0.26% | 0.63% | 0.09% | 0.53% | 0.57% | |
| AUD | -0.09% | 0.07% | 0.16% | 0.55% | -0.09% | 0.37% | 0.47% | |
| NZD | -0.56% | -0.33% | -0.22% | 0.11% | -0.53% | -0.37% | 0.09% | |
| CHF | -0.66% | -0.43% | -0.31% | 0.03% | -0.57% | -0.47% | -0.09% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The cautious market mood helped the USD stay resilient against its rivals on Thursday. After posting losses on Tuesday and Wednesday, the USD Index closed in positive territory before entering a consolidation phase near 100.00. Investors expect Nonfarm Payrolls to rise by 80K following the disappointing 57K increase recorded in June.
US jobs report in focus as Fed watches unemployment and wage trends
Analysts at Danske Bank flag the "US July Jobs Report" as the key release, projecting "Nonfarm Payrolls at +70k, the unemployment rate unchanged at 4.2%, and average hourly earnings at +0.3% m/m s.a." They note that "most leading data still point towards solid labour market conditions, although weak labour supply growth also weighs on the employment growth outlook," adding that "the unemployment rate remains the Fed's primary focus."
Strategists at MUFG/BTMU observe that the general sentiment among Fed officials appears consistent with a "slow-hire, slow-fire equilibrium," with policymakers expecting "overall labour demand" to cool "to a sustainable pace" even as "persistent stickiness in core inflation keeps focus anchored on price stability."
Musalem flags persistent inflation risks and defends surprise moves, keeping Dollar bulls alert
Federal Reserve Bank of St. Louis President Alberto Musalem delivered a hawkish message on Thursday, with a 7.4/10 FXS Speechtracker score modestly above the 7/10 historical average, underscoring concern that inflation expectations risk losing their anchor even as headline measures appear stable around the 2% target. The emphasis on core inflation between 2.5% and 3%, a preference for incremental rate hikes, and the assertion that the labor market is not the primary inflation driver collectively point to a bias toward tighter policy, while the remark that it is sometimes acceptable for the central bank to surprise markets reinforces the possibility of less telegraphed moves that could support the Dollar.
In the meantime, US President Donald Trump reiterated that he expects the war to end "pretty soon," while Iran notes that they are close to finalizing a proposed framework for commercial shipping through the Strait of Hormuz.
Following Wednesday's upsurge, Gold closed marginally lower on Thursday. In the European morning on Friday, Gold gathers bullish momentum and closes in on $4,300, rising more than 1% on the day.
Gold rally pauses as market awaits key US payrolls test
Analysts at OCBC note that Gold has “retained most of its recent gains,” even as momentum has cooled, with the rebound in oil “reviv[ing] inflation concerns and push[ing] US Treasury yields higher.” They add that “tonight’s payrolls report is the next test,” suggesting that “a weaker print could reinforce the recent move by further reducing Fed hike expectations, while a firmer outcome may prompt some profittaking after the sharp rally.”
EUR/USD holds steady above 1.1500 after losing more than 0.2% on Thursday. The data from Germany showed earlier in the day that Industrial Production expanded by 0.2% on a monthly basis, coming in above the market expectation of 0.1%.
GBP/USD struggles to gain traction after posting small losses on Thursday and trades slightly below 1.3450.
USD/JPY moves sideways below 158.50 in the early European session on Friday but clings to weekly recovery gains.
Nonfarm Payrolls FAQs
What are Nonfarm Payrolls?
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.
How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?
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.
How does Nonfarm Payrolls affect the US Dollar?
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.
How does Nonfarm Payrolls affect Gold?
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.
Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?
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.