US Dollar gains more ground with NFPs around the corner
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Patricio Martín
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09 Jan @ 06:10 (GMT+0)

US Dollar gains more ground with NFPs around the corner

  • Traders remain alert to potential Chinese stimulus effects, though the US Dollar’s upward trajectory looks steady on Thursday.
  • Intensifying concerns over rising consumer prices triggered a mini-crisis in Gilts, enhancing safe-haven demand for the USD.
  • Steady labor market data, cautious FOMC Minutes, and anticipation of Friday’s December Nonfarm Payrolls further underpin Greenback strength.

The US Dollar Index (DXY), which measures the value of the USD against a basket of currencies, ticks up on inflation woes, with the Greenback consolidating at current levels. Inflation concerns take over and trigger a mini-crisis in the UK’s Gilts. The DXY currently orbits the 109.00 mark, supported by robust demand amid ongoing monetary policy tightening signals. Now, investors’ eyes are on Friday’s US Nonfarm Payrolls (NFP) for December.

Daily digest market movers: USD sees gains as markets assess FOMC Minutes, NFP looms

  • Initial Jobless Claims fell to 201K in the week ending January 4, better than the 218K consensus. Meanwhile, ADP reported 122K private-sector jobs in December, below expectations.
  • FOMC Meeting Minutes highlight placeholder assumptions on trade and immigration policies, with officials concerned about inflation possibly taking longer to reach 2%. Most participants backed a 25 bps cut in December, but upside inflation risks pushed policymakers toward caution.
  • US yields stabilize as the 10-year hovers near 4.67%, while the 30-year yield sits around 4.90% after a heavy auction week. Despite earlier lukewarm demand for 10-year notes, 30-year bonds saw solid uptake, reflecting investor resilience.
  • Loose financial conditions continue with the Chicago Fed’s indicator loosening for ten straight weeks, helping spur growth as the Fed readies for potential fiscal stimulus down the road.
  • Markets gear up for December NFP data on Friday, with investors expecting clarity on labor market momentum and possible policy implications. The headline figure is expected to come down from 227,000 to 160,000.

DXY technical outlook: Indicators hold upward traction but begin to flatten

The US Dollar Index defended its 20-day Simple Moving Average (SMA), maintaining a constructive bias despite intermittent pullbacks. Technical indicators still tilt positive, though they appear to be flattening rather than accelerating further.

Key support rests around 108.40, followed by 108.00 if bearish momentum picks up. As long as inflation concerns and steady yields persist, the DXY may retain its elevated stance near 109.00, albeit with narrower trading ranges in the near term.

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.