The United States (US) Bureau of Labor Statistics (BLS) is set to release the Nonfarm Payrolls (NFP) data for July on Friday at 12:30 GMT.
With investors scaling back bets for a Federal Reserve (Fed) interest rate hike in September on easing inflation fears, the underlying details of the employment report could influence how markets assess the US central bank’s policy outlook and drive the US Dollar’s (USD) valuation.
What to expect from the Nonfarm Payrolls report?
Investors expect NFP to rise by 80K following June’s disappointing print of 57K. The Unemployment Rate is seen holding steady at 4.2%, while the annual wage inflation, as measured by the change in the Average Hourly Earnings (AHE), is projected to remain unchanged at 3.5%.
Economists at Deutsche Bank expect a slightly firmer US labour market print on Friday, projecting that the July payrolls report will show employment growth of “+65k, modestly above June’s +57k reading,” with “private payrolls also expected to rise by +65k after +49k previously.” They forecast the unemployment rate to remain at 4.2%, “although risks are skewed towards a rounding up to 4.3% if labour force participation rebounds after last month’s sharp decline.” On pay and hours, Deutsche Bank looks for “average hourly earnings to increase by +0.3% month-on-month, unchanged from June, while average hours worked are forecast to hold at 34.3 hours.”
Meanwhile, strategists at BNY Mellon flag this week’s July Nonfarm Payrolls report as a key data point for the Fed, noting that “market expectations currently see around 80,000 new jobs.” They note that they don’t think the payrolls “breakeven rate” needed to keep the unemployment rate from rising “is much above 50,000 per month,” given that “it currently doesn’t require large monthly employment gains to keep the unemployment rate steady, thanks to a much slower labor force growth than before the pandemic.”
Economic Indicator
Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months’ reviews and the Unemployment Rate are as relevant as the headline figure. The market’s reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
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How will the US July Nonfarm Payrolls affect EUR/USD?
Fed policymakers remain focused on taming inflation as the labor market shows no signs of a cooldown despite the disappointing June NFP print. Earlier in the week, Philadelphia Fed President Anna Paulson told CNBC that the Fed will need to act if they fail to make progress on inflation and noted that the job market is stable. Similarly, Kansas City Fed President Jeff Schmid defined the labor market as “roughly balanced” and said that inflation is “too high” and “worrisome.”
After rising more than 20% in July, crude Oil prices turned south in August as investors grew optimistic about the re-opening of the Strait of Hormuz. In turn, the CME Group FedWatch Tool’s probability of a 25 basis points (bps) Fed interest rate hike in September declined to 55% from about 70% at the end of July. A significant downside surprise in the NFP, with a print below 40K, could suggest that the Fed could take its time to ensure that the labor market is not in a downturn before tightening the monetary policy. In this scenario, the USD could come under pressure and allow EUR/USD to gain traction.
Conversely, an NFP increase of more than 100K could hint that policymakers are likely to continue to prioritize price stability without worrying about a negative impact on employment. In this case, the USD is likely to stay resilient against its rivals and weigh on EUR/USD. However, the pair’s downside could remain limited regardless of the NFP figure if Oil prices continue to decline in the near term.
TD Securities analysts argue that the recent bout of post-Fed Dollar softness does not mark a regime change for the currency. The bank “view[s] the latest USD move more as a temporary retracement rather than the formation of a new USD downtrend,” explaining that “hawkish speeches from the Fed dissenters should offset some of the post-FOMC USD weakness.” In their view, “in the absence of material US data weakness to remove the near-term Fed rate hike pricing, the broad USD Q3 2026 uptrends remain intact.”
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“EUR/USD’s near-term technical outlook suggests that the pair is closing in on key technical levels that could confirm or deny a bullish reversal. The Relative Strength Index (RSI) indicator on the daily chart rose above 60 after failing to clear the neutral 50 level multiple times since early June. While this points to a buildup in bullish momentum, technical buyers could refrain from committing to a steady uptrend until the pair clears 1.1570 and 1.1630 levels, where the 100-day Simple Moving Average (SMA) and the 200-day SMA are located, respectively. If EUR/USD manages to stabilize above the latter level and confirms it as support, 1.1800 could be seen as the next significant resistance level.”
“On the downside, the first support area could be spotted at 1.1475-1.1440 (50-day SMA, 20-day SMA) ahead of 1.1360 (static level) and 1.1280 (static level).”
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.
