Nonfarm Payrolls (NFP) in the US rose 272,000 in May, the US Bureau of Labor Statistics (BLS) reported on Friday. This reading followed the 165,000 increase (revised from 175,000) recorded in April and came in above the market expectation of 185,000.
Further details of the jobs report showed that the Unemployment Rate edged higher to 4% from 3.9%, while the Labor Force Participation Rate declined to 62.5% from 62.7%. Additionally, wage inflation, as measured by the change in the Average Hourly Earnings, rose 4.1% on a yearly basis, up from 4% (revised from 3.9%) in April.
Live Coverage: Nonfarm Payrolls promise explosive action in Gold, US Dollar, Stocks.
“The change in total nonfarm payroll employment for March was revised down by 5,000, from +315,000 to +310,000, and the change for April was revised down by 10,000, from +175,000 to +165,000,” the BLS noted in its press release. “With these revisions, employment in March and April combined is 15,000 lower than previously reported.”
Market reaction to Nonfarm Payrolls
The US Dollar gathered strength against its rivals with the immediate reaction to Nonfarm Payrolls data. At the time of press, the US Dollar Index was up 0.5% on the day at 104.60.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.44% | 0.35% | 0.61% | 0.42% | 0.63% | 0.60% | 0.65% | |
| EUR | -0.44% | -0.07% | 0.17% | 0.01% | 0.19% | 0.22% | 0.22% | |
| GBP | -0.35% | 0.07% | 0.22% | 0.05% | 0.27% | 0.30% | 0.29% | |
| JPY | -0.61% | -0.17% | -0.22% | -0.20% | 0.00% | -0.01% | 0.05% | |
| CAD | -0.42% | -0.01% | -0.05% | 0.20% | 0.21% | 0.26% | 0.24% | |
| AUD | -0.63% | -0.19% | -0.27% | -0.00% | -0.21% | 0.03% | 0.02% | |
| NZD | -0.60% | -0.22% | -0.30% | 0.00% | -0.26% | -0.03% | 0.00% | |
| CHF | -0.65% | -0.22% | -0.29% | -0.05% | -0.24% | -0.02% | -0.01% |
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).
This section below was published as a preview of the US May Nonfarm Payrolls data at 05:00 GMT.
- US Nonfarm Payrolls are foreseen at 185K in May, data hints at a miss.
- The United States Employment report could impact the Federal Reserve’s decision next week.
- The US Dollar heads into the event with a weak tone, still lacking directional momentum.
The United States (US) will release the May Nonfarm Payrolls (NFP) report on Friday at 12:30 GMT. Ahead of the event, the country released multiple employment-related figures that anticipate a soft NFP headline figure.
Furthermore, the European Central Bank (ECB) announced its decision on monetary policy on Thursday. As widely anticipated, the central bank trimmed interest rates by 25 basis points (bps) each, with the interest rates on the main refinancing operations, the marginal lending facility, and the deposit facility coming down to 4.25%, 4.5%, and 3.75%, respectively. However, European policymakers delivered a quite hawkish statement, limiting EUR/USD slide after such an aggressive decision.
What to expect in the next Nonfarm Payrolls report?
The NFP report is expected to show that the US economy added 185K new jobs in May, above the 175K gained in April. The Unemployment Rate is foreseen stable at 3.9%, while Average Hourly Earnings, a measure of wage inflation, are expected to have ticked up by 0.3% in the month from the previous 0.2%. The annual reading is forecast to remain unchanged at 3.9%.
Throughout the week, the US unveiled the April Job Openings and Labor Turnover Survey (JOLTS), which showed that the number of job openings on the last business day of the month stood at 8.059 million, below the downwardly revised 8.35 million posted in March. Additionally, the Automatic Data Processing (ADP) survey indicated that the private sector created 152K new positions in May, below the 173K anticipated by market players and easing from the previous 188K. More relevant, the ADP report showed annual pay was up 5%.
ADP Chief Economist Nela Richardson said:“Job gains and pay growth are slowing going into the second half of the year. The labor market is solid, but we’re monitoring notable pockets of weakness tied to both producers and consumers.”
Finally, Initial Jobless Claims increased by 229K in the week ending May 31, worse than the 220K anticipated and above the previous weekly raise of 221K.
Data released ahead of the NFP report showed that price pressures remain high while the labor market is loosening a bit, not enough to twist Federal Reserve (Fed) officials’ hands.
It is worth reminding that the central bank has a dual mandate to achieve maximum employment and keep prices stable. However, Fed policymakers have stated that a softening labor market would indeed help them move away from the tight monetary policy.
Regarding inflation, the latest Personal Consumption Expenditures (PCE) Price Index report, the Fed’s favorite inflation gauge, showed it held steady at 2.7% YoY in April, according to the US Bureau of Economic Analysis (BEA). On a monthly basis, the PCE Price index was up 0.3%, as expected, although the core monthly figure was slightly lower than anticipated, up 0.2%.
The Federal Open Market Committee (FOMC) is widely anticipated to keep the funds rate unchanged between 5.25% and 5.50%, while speculative interest foresees a rate cut in September at the earliest. The Fed is also expected to begin tapering the pace at which it rolls off assets from its balance sheet.
How will the US May Nonfarm Payrolls report affect EUR/USD?
Generally speaking, a strong headline reading alongside increased wage pressures will be understood as a further delay in interest rate cuts and result in a firmer US Dollar. On the contrary, a highly disappointing report alongside easing wages may result in the USD accelerating its slump, as the market will understand it as a higher chance of a soon-to-come rate cut.
The EUR/USD pair trades just below 1.0900 following the ECB monetary policy decision and ahead of the NFP release. The pair peaked at 1.0915 early in June, steadily meeting sellers on spikes beyond the 1.0900 level since mid-March.
Valeria Bednarik, FXStreet’s Chief Analyst, states: “Market participants seem willing to push EUR/USD higher, but can’t still make up their minds. What seems clear is that interest in buying the US Dollar is quite limited. From a technical point of view, the pair needs to clear the 1.0910 region to extend gains, with an intermediate resistance at around 1.0950 ahead of the 1.1000 price zone. A bearish movement seems more difficult, giving the downside seems more messy, without a clear breakout point until 1.0790. Below the latter, the pair could slide towards 1.0700, yet buying the dips seems to be the name of the game, and further slides seem unclear.”
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.