- The US Dollar trades lower after further easing in tariff-related fears ahead of the key Nonfarm Payrolls release.
- China said to consider starting tariff negotiations with the Trump administration.
- The US Dollar Index capped below 100.00 ahead of key US data.
The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against six major currencies, remains capped and heads back to 99.75 at the time of writing on Friday after a false break above the 100-marker. The Greenback is softening a touch on the back of headlines that China is considering to start tariff negotiations with the Trump administration. As markets navigate news of trade negotiations, they are still eagerly awaiting the real first official trade deal.
Regarding the Ukraine-Russia war, the mineral deal between the US and Ukraine was signed, a much smaller one in terms of capital potential for the United States and not military guarantees for Ukraine whatsoever, Bloomberg reported.
On the economic calendar front, the focus heads to the Nonfarm Payrolls (NFP) release for April. Expectations are still for a positive print, with the lowest estimate coming in at 50,000 and the highest estimate at 171,000. That means any print below the 50,000 number could be enough to send the DXY lower, while a number above 171,000 could see ample amount of US Dollar strength.
Daily digest market movers: Japan says it holds cards in trade talks
- Japanese Finance Minister Katsunobu Kato said this Friday that the Japanese holdings of US debt are a tool for negotiating with the Trump administration, explicitly raising for the first time its leverage as a massive creditor to the United States in its negotiations, Reuters reported.
- In a Friday statement, China’s Commerce Ministry said that it had noted senior US officials repeatedly expressing their willingness to talk to Beijing about tariffs, and urged officials in Washington to show “sincerity” toward China. The ministry added “the US has recently sent messages to China through relevant parties, hoping to start talks with China,” and “China is currently evaluating this”, Bloomberg reports.
- At 12:30 GMT, the Nonfarm Payrolls report will be published:
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- The Payrolls print is expected to come in at 130,000 against the previous 228,000.
- The Unemployment rate is expected to remain stable at 4.2%.
- Monthly Average Hour Earnings are expected to grow at a steady pace of 0.3%.
- Equities in Europe have taken over the positive tone and are up over 1% on the day. US equity futures look more sluggish.
- The CME FedWatch tool shows the chance of an interest rate cut by the Federal Reserve in May’s meeting stands at 7.6% against a 92.4% probability of no change. The June meeting sees a 65.1% chance of a rate cut. Should Nonfarm Payrolls be a big beat on the estimated number, expect rate cut expectations to be unwound, while a miss might see rate cut expectations for June and even May soar.
- The US 10-year yields trade around 4.23%, erasing past weeks’ softening as traders look for clues on potential rate cut projections from the Federal Reserve.
US Dollar Index Technical Analysis: Last one standing
The US Dollar Index (DXY) is at a key technical level this Friday, brought there after a three-day winning streak. The Nonfarm Payrolls release could be the key here for this Friday, with a continuation from the past three days and a firm break above the 100-handle. Still, and even in that favorable scenario, a technical rejection could push back the DXY to new three-year lows.
On the upside, the DXY’s first resistance comes in at 100.22, which supported the DXY back in September 2024, with a break back above the 100.00 round level as a bullish signal. A firm recovery would be a return to 101.90, which acted as a pivotal level throughout December 2023 and again as a base for the inverted head-and-shoulders (H&S) formation during the summer of 2024.
On the other hand, the 97.73 support could quickly be tested on any substantial bearish headline. Further below, a relatively thin technical support comes in at 96.94 before looking at the lower levels of this new price range. These would be at 95.25 and 94.56, meaning fresh lows not seen since 2022.
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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