- The British Pound (GBP) manages to regain some upside traction on Friday.
- The US Dollar (USD) tumbles to daily lows in the wake of dismal NFP in July.
- The US economy added fewer jobs than initially estimated in July (73K).
The Sterling now gathers some fresh traction and lifts GBP/USD back to the positive territory beyond 1.3200 the figure following the abrup loss of momentum in the Greenback in the wake of the publication of the US jobs report.
NFP weighs down on the Dollar
Indeed, the Greenback now faces a wave of selling pressure after the US economy added just 73K jobs last month, markedly below the 110K expected by analysts. The US Unemployment ticked higher to 4.2% (from 4.1%), also adding to the generalised softer tone of the report.
Meanwhile, Cable flirts with two-day highs in response to the steep correction in the US Dollar Index (DXY), bouncing off earlier four-month troughs around the 1.3140 zone, as investors seem to have started to reprice a potential rate cut by the Federal Resereve at its September gathering
Tech landscape
If losses extend, GBP/USD may first revisit the July valley at 1.3141 (august 1), just ahead of the May floor at 1.3139 (May 12). A continued slide could bring the key 1.3000 threshold back into view.
On the flip side, transitory resistance stands at the 100-day and 55-day SMAs at 1.3337 and 1.3505, respectively, prior to the weekly high of 1.3588 (July 24).
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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