The July Non-farm payrolls (NFP) has surpassed the expectations of the market and this has led to a reaction from the Forex market and an increase in the US dollar. According to the NFP report, 943 thousand jobs were gained in July and the unemployment rate is declining rapidly as it falls to 5.4%. As a result, the EUR/USD (-0 63%), USD/CHF (+1.0%), USD/CAD (+0.50%) and GDP/USD (-0.40%) are currently in favor of the Greenback.
The NFP current report has come as a surprise to many. Several factors have resulted in this recent spike. The enhanced COVID-19 unemployment benefits which are to expire in September and the government payrolls which came in up to 71,000 month-over-month have caused this increase as reported by the NFP.
Better-Than-Expected NFP Report
Headline for the NFP report July has exceeded the presumed results as it reports a 943 thousand increase far higher than the forecasted report of 870K. The sharp decline in the unemployment rate at 5.4% has also topped the 5.7% figure expected by markets – despite an increase in the participation rate to 61.7%. In addition, the U-6 Underemployment Rate has tumbled from 9.8% to 9.2%, adding to the dollar increase. In general, job creation is currently healthy.
Following the report, about 75% of the jobs lost during lockdowns last year have been recovered, but there are still 5.7M fewer jobs compared to February 2020. The US dollar rallies as a result of this update and this brings the labor market closer to the FOMC criteria for ” substantial further progress”
A Plunge at The NFP Report by EUR/USD
The US Dollar grows stronger with the help of a better-than-expected NFP report. The dollar spiked up on Friday, after the monthly jobs report which stoked expectations. The U.S. dollar index, which estimates the greenback against a trade-weighted basket of six major currencies, has increased by 0.59% to 91.69, as U.S. bond gains as well as a 10-yield rate trending close to 1.3%. This is a good day for salary earners as salaries are up 0.4% MoM in July, better than the expected 0.3%. The wage growth has advanced from 3.6% to 4% YoY breaking the forecasts. However, it is a bad turn for stock investors and shares of tech companies will likely bear the brunt of losses.
“The recovery in employment is getting to a place where the Fed needs to seriously consider tapering its asset purchases to avoid an unnecessary overshoot on inflation”
What Does This Mean For Traders?
These current figures represent a new positive factor for the US Dollar and might be the first reason for a feasible upside retracement. However, specialized pointers suggest that the Dollar needs a quick break before it resumes the upside trend. For Feds, despite the upside tick in Unemployment Rate, the figures are welcome. The main concern right now is not wages, however, there is no assurance that the Fed will maintain the established policy until the end of the year.