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The DXY rose by more than 0.80% to 103.90 on Friday
US Nonfarm Payrolls came in higher than expected for January.
US bond yields are sharply increasing as markets push to May the start of the easing cycle.
The US Dollar (USD) rose to 103.90 on Friday’s Dollar Index (DXY) chart, mainly fueled by a promising labor market report that has convinced markets a March rate cut is not in the cards.
Fed Chair Powell reinforced the idea that a rate cut in March is unlikely despite ongoing market speculation. In line with that, he stated that the bank will monitor incoming data to set the timing of the easing cycle. As the US labor market remains tight, the bank might consider delaying rate cuts.
Unemployment for January held steady at 3.7%, lower than the 3.8% expected.
Nonfarm Payrolls increased significantly, surpassing expectations for January. A reported 353K additional jobs were created in the US against a projected 180K, indicating robust job market growth.
Average Hourly Earnings for January, as per US Bureau of Labor Statistics, were up by 0.6% MoM, exceeding the consensus of 0.3%.
Annual Average Hourly Earnings for 2024 arrived at 4.5%, surpassing the previous 4.4%.
US bond yields sharply rose with 2-year, 5-year and 10-year bonds trading at rates of 4.38%, 4.00% and 4.05%, respectively.
According to the CME FedWatch Tool, the odds of a cut in March plummeted to 20%.
The indicators on the daily chart indicate a dominance of buying pressure, despite some contrasting signals. The Relative Strength Index (RSI) gliding on a positive slope and in positive territory suggests a build-up of buying momentum, which is further solidified by the rising green bars of the Moving Average Convergence Divergence (MACD). However, mixed signals emanate from the Simple Moving Averages (SMAs). Although the index is above both the 20-day and 200-day SMAs, signifying a bullish outlook, it remains below the 100-day SMA, indicating a bearish hindrance.
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.
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