Forex Today: US Dollar recovery gains traction as crucial employment data looms

What is on the market agenda for Friday, 6 November?

Gaining ground against its peers early Friday, the US Dollar (USD) is extending Thursday’s marginal advance, with the USD Index approaching 102.00. September Retail Sales figures are due on the European economic calendar. Market volatility could pick up later in the day when the US releases its October employment report, covering Nonfarm Payrolls, wage inflation and the Unemployment Rate.

How Is The US Dollar Performing Today?

Today’s percentage moves in the US Dollar (USD) against the major currencies listed are set out below. The US Dollar recorded its strongest performance against the Australian Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.36%	0.34%	0.06%	0.34%	0.82%	0.69%	0.13%
EUR	-0.36%		-0.03%	-0.30%	-0.02%	0.45%	0.32%	-0.23%
GBP	-0.34%	0.03%		-0.25%	0.01%	0.48%	0.35%	-0.21%
JPY	-0.06%	0.30%	0.25%		0.30%	0.77%	0.63%	0.07%
CAD	-0.34%	0.02%	-0.01%	-0.30%		0.47%	0.33%	-0.22%
AUD	-0.82%	-0.45%	-0.48%	-0.77%	-0.47%		-0.13%	-0.69%
NZD	-0.69%	-0.32%	-0.35%	-0.63%	-0.33%	0.13%		-0.54%
CHF	-0.13%	0.23%	0.21%	-0.07%	0.22%	0.69%	0.54%

Percentage movements between the major currencies are illustrated in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. For instance, selecting the US Dollar on the left and following that row across to the Japanese Yen gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Heavy selling hit the USD on Wednesday as crude oil prices slumped after the Republicans’ defeat in the US midterm elections. Renewed demand for safe havens on Thursday, however, supported the USD against other currencies. The Nasdaq Composite shed more than 6% that day; losses in the Dow Jones Industrial Average and the S&P 500 indexes stood at 3.4% and 4.4%, respectively. US stock index futures are showing a mixed trend early Friday, while oil prices are inching higher following Thursday’s sharp recovery.

Speaking to reporters at the White House, US President Donald Trump said Iran was not undertaking anything related to its nuclear programme without US approval. He added: “Now we will make a decision [on Iran]. Do we want to go further… and certify it… so that it will never happen again. I would rather not destroy the rest of the country if possible, but maybe I will have to. You will know soon enough,”

An October increase of 65K in US Nonfarm Payrolls is expected by markets, compared with September’s gain of 29K. The Unemployment Rate is forecast to stay at 4.2%.

Will US payrolls keep the Fed’s inflation focus intact?

With the latest US payroll numbers due to lead the agenda, Commerzbank analysts caution that “anyone hoping for a quiet trading session on Friday after this eventful week is likely to be disappointed,”. They call the release “one of the most important pieces of economic data”, explaining that it “usually provide[s] an indication of the Fed’s future monetary policy.”

For the bank, “the key question is what this means for the Fed’s future monetary policy.” The analysts argue that “if the labour market remains as robust as it has been so far this year, policymakers are likely to maintain their focus on the inflation figures due next week,” implying that continued jobs-market strength would leave forthcoming price figures central to the Fed’s policy discussions.

Gold remains under pressure early Friday, trading below $4,050 with a daily decline of more than 1%. On Thursday, the metal had reached a new two-week peak near $4,150 before surrendering much of the advance to finish below $4,100.

Following its November policy meeting, the Bank of England (BoE) announced a 25 basis point (bps) interest rate increase to 4%. At the subsequent press conference, BoE Governor Andrew Bailey said another rise in the bank rate may be justified unless progress is made towards resolving the Middle East conflict. GBP/USD is trading near 1.3400 on Friday, down about 0.35% on the day, as bearish pressure persists after Thursday’s marginal decline.

Thursday brought an end to a three-day run of gains for EUR/USD, which is continuing to decline below 1.1200 during Friday’s European morning session.

USD/JPY is moving within a tight range just below 158.00, holding steady after Thursday’s loss of about 0.5%.

USD/CAD is maintaining its upward momentum above 1.4050 in the European morning, following a gain of about 0.3% on Thursday. October labour market figures are due from Statistics Canada later in the day. Investors anticipate an unchanged Unemployment Rate of 6.5% and a Net Change in Employment of 13.6K, against September’s disappointing reading of -68.3K.

Nonfarm Payrolls: Key Questions Answered

What do Nonfarm Payrolls measure?

Included in the monthly employment report from the US Bureau of Labor Statistics, Nonfarm Payrolls (NFP) track the change in US employment over the preceding month. This component excludes jobs in the farming industry.

Why do Nonfarm Payrolls matter for Federal Reserve monetary policy decisions?

By indicating how well the Federal Reserve is fulfilling its mandate to promote full employment and 2% inflation, Nonfarm Payrolls can help shape its policy decisions. A comparatively strong NFP reading points to more people working and earning money, which probably translates into higher spending. Conversely, a relatively weak reading could signal that people are finding it difficult to secure jobs. To counter high inflation arising from low unemployment, the Fed typically increases interest rates. When the labour market stagnates, it generally cuts rates to support employment.

How does the US Dollar respond to Nonfarm Payrolls?

A positive relationship generally exists between Nonfarm Payrolls and the US Dollar: stronger-than-expected figures tend to lift the USD, while weaker-than-expected readings tend to weigh on it. This influence works through the effect of NFP on inflation, expectations for monetary policy and interest rates. Higher payroll growth usually points to tighter policy from the Federal Reserve, providing support to the USD.

Why do Nonfarm Payrolls influence Gold prices?

Gold prices and Nonfarm Payrolls generally move in opposite directions. A payroll reading above expectations therefore tends to put pressure on Gold, while a below-expected figure tends to have the reverse effect. Stronger NFP figures generally support the USD. Since Gold, like most major commodities, is priced in US Dollars, a rise in the currency’s value means fewer Dollars are needed to purchase an ounce of Gold. Higher interest rates, which stronger NFP figures typically help drive, also reduce Gold’s investment appeal relative to holding cash, where the money earns at least some interest.

Why can the market reaction to Nonfarm Payrolls run counter to expectations?

Other elements of the broader employment report can overshadow Nonfarm Payrolls, which represent just one component. For example, markets have sometimes looked past the potentially inflationary implications of an above-forecast NFP reading when Average Weekly Earnings fell short of expectations, instead treating the decline in earnings as deflationary. The Participation Rate and Average Weekly Hours can also shape the response, although this occurs only in rare episodes such as the “Great Resignation” or the Global Financial Crisis.