Non Farm Payrolls in the US. Currency markets on the move

Today the U.S. will publish non-farm payrolls (NFP) which are expected to rise to 193,000 in July whilst unemployment rate to decline to 3.9%.

NFP is a key economic indicator since it identifies the rate of economic growth and inflation therby giving a clear indication where the economy is heading. NFP data represents the total number of paid U.S. workers, excluding government officials, private household employees, employees of non-profit organisation and farm employees.

The economy usually grows when non-farm payrolls are expanding and thus looking at these figures is very crucial for any currency trader.

If the official data released is lower than expected, it is anticipated that the US dollar weakens whereas, if the data is higher than expected, the U.S. dollar is expected to strengthen.

Generally speaking therefore, the typical response we see is that a strong Nonfarm payroll number (which is likely to be the case this time round) is positive for the USD, and so we would see a USD rise against major pairs.

A typical indication that we are going to have a higher than expected NFP number is that we already had a very strong ADP* nonfarm employment change report on Wednesday which showed higher than expected data figures. The ADP report is normally considered a good predictor of the non-farm payroll report. Before the report was issued, EUR/USD was trading at 1.16868 and is now at 1.15771.

As traders we also need to consider, although unlikely this time round, that actual payroll data in might be as ‘expected’ and this will likely cause mixed reactions in the currency markets. At that point traders usually look at other numbers in the report which include the unemployment rate and manufacturing payroll sub-component. Basically, if the unemployment rate drops or manufacturing payrolls rise, currency traders will normally side with a stronger dollar, a positive for the U.S. economy. But, should the unemployment rate increase, manufacturing jobs decline, investors will drop the U.S. dollar for other currencies.


*ADP National Employment Report is a measure of the monthly change in non-farm, private employment, based on the payroll data of approximately 400,000 U.S. business clients.

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