- The US Dollar trades mixed and rather flat this Friday ahead of the US Nonfarm Payrolls release.
- Markets are looking for a weaker Nonfarm Payrolls data which will spark more interest rate cut expectations from the Fed.
- The US Dollar Index (DXY) is back near pivotal support at 107.35 and could rip through it on a weaker NFP print.
The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, trades at 107.83 just ahead of the US Nonfarm Payrolls (NFP) report for January. Consensus is for a substantially weaker print, taking into account the recent economic US numbers pointing to a slowdown or consolidation in the jobs market. A much weaker Nonfarm Payrolls number could spark hopes for more than two interest rate cuts from the Federal Reserve (Fed) in 2025.
Expectations for the Nonfarm Payrolls data are for 170,000 new workers in the month compared to 256,000 in December. The estimated range is between 105,000 at the lowest estimate and 240,000 at the high end of the range. Any print below 105,000 will spark substantial US Dollar (USD) weakness and might see the DXY break below 107.00.
Daily digest market movers: Data drop
- At 13:30 GMT, the US Nonfarm Payrolls report for January will be released:
- Nonfarm Payrolls data is expected to come in at 170,000, from 256,000 in December.
- Monthly Average Hourly Wages are expected to remain unchanged at 0.3%.
- The Unemployment Rate should remain stable at 4.1%.
- At 14:25 GMT, Fed Governor Michelle Bowman delivers a speech on bank regulation at the 2025 Wisconsin Bankers Association Bank Executives Conference.
- At 17:00 GMT, Fed Governor Adriana Kugler speaks on “Entrepreneurship and Aggregate Productivity” at the 2025 Miami Economic Forum in Miami, Florida.
- Equities are looking for direction on Friday, with minor gains and losses in the European markets. US futures are roughly flat on the day.
- The CME FedWatch tool projects an 85.5% chance that the Fed will keep interest rates unchanged at its next meeting on March 19.
- The US 10-year yield is trading around 4.44%, recovering from its fresh yearly low at 4.40% printed on Wednesday.
US Dollar Index Technical Analysis: Fireworks a given
The US Dollar Index (DXY) is in a tough spot at the moment. The current tariff implementations from US President Donald Trump are not clearly having the same impact on the Greenback as back in March of 2018, when the first tariffs on China were implemented. Markets are instead rather looking at US yields gapping lower and US economic data starting to open room for more than two interest rate cuts from the Federal Reserve this year. If the NFP print this Friday comes in substantially softer, expect markets to price in three interest rate cuts by the Fed for 2025 and the DXY fall to 106.00.
On the upside, the first barrier at 109.30 (July 14, 2022, high and rising trendline) was briefly surpassed but did not hold on Monday. Once that level is reclaimed, the next level to hit before advancing further remains at 110.79 (September 7, 2022, high).
On the downside, the October 3, 2023, high at 107.35 is still acting as support while the Relative Strength Index (RSI) has used the rather calm last three days to catch a breather and now has more downside room to pull the DXY lower. Hence, look for 106.52 (April 16, 2024, high) or even 105.98 (resistance in June 2024 and 100-day Simple Moving Average) as better support levels.
US Dollar Index: Daily Chart
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.
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