US: Can NFP Employment Data Help the Dollar?


August 5, 2021, | AtoZ Markets-Most analysts agree that July US nonfarm payrolls may continue the upward trend we have seen since April, although significantly slower. Remember that the NFP employment data is very important for the behavior of the dollar.

However, in our opinion, there are some reasons to suspect that economists are once again being overly optimistic.

Earlier in the week, analysts reported that 925K jobs were created last July. However, this figure has been declining and fell to 895K on Wednesday following the release of the poor ADP numbers.

Finally, at only a few hours to go before the report, analysts have cut their outlook even further and now only 870K jobs are expected.

How Will Employment Numbers Affect the Markets?

It is not a secret that for the Fed, employment is key to determining monetary policy. However, the next Fed meeting is in September. As a result, this release may not be as important to consider as it normally is.

In the latest BLS report, there were 9.5 million unemployed and 9.2 million jobs. Some have attributed this discrepancy to the generous unemployment benefits that exist in the US.

Wednesday’s ADP employment report saw 330,000 jobs created versus the 683,000 expected. The June figure was revised lower.

This data did not hit the markets hard, so we can say that if July’s NFP is not far from the current estimate, the markets would already be prepared for lower numbers.

Meanwhile, economists project that the unemployment rate will drop two tenths, to 5.7% from 5.9% previously. On this issue, a rate below a million jobs created per month would mean that the Fed could keep policy on hold until well into next year.

Dollar and the Effects of Employment Data

The dollar has been gaining ground against major currencies such as the euro this week. However, the EUR/USD after moving sideways hit a high at 1.1856 but failed to gain solid bullish momentum. Now, the pair is practically unchanged around the 1.1835 level.

Currently, the pair is practically unchanged around the 1.1835 level.

On the other hand, without large macroeconomic data published, the NFP report becomes relevant for the following movements of the greenback.

The 10-year US Treasury yield increased by 3%, and this appears to be helping the dollar to stay strong against its rivals.

To conclude, we can say that if the numbers are bad, the dollar will take only a small hit. However, if the data is terrible, volatility will take over the market

 

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