- Nonfarm Payrolls are expected to rise by 160K in February, following the 143K increase reported in January.
- The Unemployment Rate is forecast to remain unchanged at 4%.
- Markets could reassess the possibility of a Fed rate cut in May after employment data.
The United States (US) Bureau of Labor Statistics (BLS) will publish the highly-anticipated Nonfarm Payrolls (NFP) data for February on Friday at 13:30 GMT.
Growing concerns over US President Donald Trump’s trade policy causing an economic downturn in the US have been driving the action in financial markets lately. The details of the employment report could influence the Federal Reserve’s (Fed) policy outlook and impact the US Dollar’s (USD) valuation.
What to expect from the next Nonfarm Payrolls report?
Markets expect NFP to rise by 160,000 in February, following the disappointing 143,000 increase recorded in January. The Unemployment Rate is forecast to remain unchanged at 4%, and annual wage inflation, as measured by the change in the Average Hourly Earnings, is seen holding steady at 4.1%.
Previewing the February employment report, TD Securities analysts said: “Payroll gains likely remain steady at just below 150k for a second consecutive month in February following last month’s underwhelming 143k increase.”
“High-frequency data suggest job creation wasn’t as strong as February last year. We also expect the Unemployment Rate to move higher to 4.1% while wage growth likely mean-reverted to 0.2% m/m as hours worked normalize in February,” they added.
Meanwhile, the data published by the Automatic Data Processing (ADP) showed on Wednesday that private sector payrolls rose by 77,000 in February, missing the market expectation of 140,000 by a wide margin.
Economic Indicator
Average Hourly Earnings (YoY)
The Average Hourly Earnings gauge, released by the US Bureau of Labor Statistics, is a significant indicator of labor cost inflation and of the tightness of labor markets. The Federal Reserve Board pays close attention to it when setting interest rates. A high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
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How will US February Nonfarm Payrolls affect EUR/USD
The US Dollar has been struggling to outperform its rivals since the beginning of the year, even though markets have been pricing in a delay in the continuation of the Federal Reserve’s policy easing. After losing about 0.9% in February, the USD Index, which gauges the USD’s valuation against a basket of six major currencies, is already down more than 3% in March, pressured by heightened fears over an economic downturn in the US.
Earlier in the week, the data from the US showed that ISM Manufacturing Purchasing Managers Index (PMI) declined to 50.3 in February from 50.9 in January. The Employment Index of the PMI survey slumped to 47.6 from 50.3 and showed a contraction in the sector’s payrolls. The Atlanta Fed revised its Gross Domestic Product (GDP) projection in its GDPNow report to -2.8% for the first quarter from -1.5% on February 28. “The nowcast of first-quarter real personal consumption expenditures growth and real private fixed investment growth fell from 1.3% and 3.5%, respectively, to 0.0% and 0.1%,” the publication read.
Additionally, the Trump administration’s decision to go ahead with the 25% tariffs on Canadian and Mexican imports, as well as the additional 10% tariffs on Chinese goods, this Tuesday triggered retaliatory responses from Canada and China. In turn, investors have to consider the potential negative impact of a deepening trade war on the US economy. According to the CME FedWatch Tool, the probability of a Fed rate cut in May has increased to nearly 40% from about 25% in the previous week.
Hence, a disappointing labor market report, with an NFP reading below 120,000, could feed into expectations for a 25 basis points reduction in interest rates in May. In this scenario, the USD is likely to stay under selling pressure and open the door for a leg higher in EUR/USD. On the other hand, market participants could refrain from pricing in a May rate cut if the NFP offers a positive surprise with a print above 170,000. In addition to growing signs of an economic slowdown in the US, Fed policymakers also have to assess how tariffs could affect inflation and inflation expectations.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“The Relative Strength Index (RSI) indicator on the daily chart rose above 70 for the first time since August, reflecting overbought conditions for EUR/USD. The Fibonacci 61.8% retracement level of the October-January downtrend aligns as a pivot level in the near term. Once EUR/USD stabilizes above this level and confirms it as support, 1.0900 (static level, round level) could be seen as next resistance before 1.0970 (Fibonacci 78.6% retracement).”
“In case EUR/USD fails to hold above 1.0800, the 200-day Simple Moving Average aligns as a key technical level at 1.0720. A daily close below this support could pave the way for a deeper correction toward 1.0570 (Fibonacci 38.2% retracement).”
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.
