Forex Today: US Dollar retreats on easing Fed rate hike bets, focus shifts to NFP
Here is what you need to know on Friday, September 4:
The US Dollar stabilizes after suffering losses against its major rivals on Thursday. Later in the American session, August employment report from the US, which will feature Nonfarm Payrolls, Unemployment Rate and wage inflation figures, will be watched closely by market participants.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.40% | -0.05% | -2.41% | -0.86% | -0.66% | 0.46% | -0.08% | |
| EUR | 0.40% | 0.35% | -1.98% | -0.45% | -0.28% | 0.82% | 0.34% | |
| GBP | 0.05% | -0.35% | -2.43% | -0.80% | -0.63% | 0.46% | -0.11% | |
| JPY | 2.41% | 1.98% | 2.43% | 1.51% | 1.77% | 2.81% | 2.26% | |
| CAD | 0.86% | 0.45% | 0.80% | -1.51% | 0.19% | 1.29% | 0.71% | |
| AUD | 0.66% | 0.28% | 0.63% | -1.77% | -0.19% | 1.10% | 0.53% | |
| NZD | -0.46% | -0.82% | -0.46% | -2.81% | -1.29% | -1.10% | -0.57% | |
| CHF | 0.08% | -0.34% | 0.11% | -2.26% | -0.71% | -0.53% | 0.57% |
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).
During the American trading hours on Thursday, cautious comments from Federal Reserve Governor Christopher Waller on a potential tightening step at the next meeting caused the US Dollar to come under pressure, with the USD Index losing more than 0.5% on the day. In the European morning on Friday, the USD Index fluctuates in a narrow range at around 99.00.
Fed’s Waller delivered a mildly less hawkish tone, with the FXS Speechtracker score at 6.1/10, slightly below the 6.3/10 historical average, signaling a modest softening in policy rhetoric. The key remark that Waller is inclined to support holding the policy rate steady in September if August inflation shows continued progress, but would consider a hike if the data come in hot, underscores a finely balanced, data-dependent reaction function that keeps upside rate risk alive. Acknowledgement of “finally” seeing disinflation alongside still-elevated inflation and a low tolerance for renewed price pressures caused the US Dollar to lose interest.
According to the CME FedWatch Tool, the probability of a 25 basis points rate hike at the upcoming meeting declined to 50% from about 63% earlier in the week.
Nonfarm Payrolls in the US are forecast to rise 56K in August following July's unexpected 23K decline. The Unemployment Rate is seen holding steady at 4.1% in this period.
US Dollar reaction seen as limited even on strong US jobs beat
According to TD Securities, a robust US jobs report on its own is unlikely to tip the balance toward a September move from the Fed. The bank argues that “a strong payrolls report is a necessary but not a sufficient condition for the Fed to hike in September,” noting that “the more important piece of the puzzle is inflation as part of the strength in the NFP can be considered to be a reversal of the July weakness.” In terms of market impact, TD expects only a modest currency response, estimating that “in the case of a +40-50k upward payrolls surprise to consensus median as we expect, historical sensitivity and current positioning would suggest +0.2% knee-jerk USD reaction on the day.”
USD/JPY recovers modestly following a sharp two-day decline and trades above 156.00 in the European morning on Friday. Still, the pair is down about 2.5% for the week. Japanese Finance Minister (FM) Satsuki Katayama said on Friday that the officials will closely monitoring bond markets with heightened urgency.
Gold (XAU/USD) rose nearly 2% on Thursday and climbed above $4,500 before correcting lower. In the early European session, XAU/USD moves in a narrow band above $4,450.
EUR/USD gained more than 0.3% on Thursday and closed above 1.1600. The pair stays relatively quiet early Friday and trades below 1.1650. Later in the session, Eurostat will publish Retail Sales data for July.
GBP/USD continues to edge higher toward 1.3550 after closing in positive territory on Thursday, supported by hawkish comments from Bank of England (BoE) Chief Economist Huw Pill.
Pill signals front-loaded BoE hike but downplays extended tightening
Pill’s latest remarks score 8.2 on FXS Speechtracker, modestly above the 7.9 historic average, indicating a slightly more hawkish tone than usual. The explicit call to raise Bank Rate to 4% and the warning about stronger second-round effects versus the “halcyon days” of inflation targeting underscored concern about entrenched inflation pressures and support a firmer stance toward GBP.
At the same time, the message that such a move “need not be the start of a prolonged and aggressive series of increases” tempered expectations of a full-blown tightening cycle, framing the shift as front-loaded rather than open-ended.
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.