Forex Today: Critical employment data loom as US Dollar recovery gains momentum

6 November, Friday: Key market developments to watch

Early Friday trading sees the US Dollar (USD) strengthen against its peers. The USD Index is advancing towards 102.00, having ended Thursday slightly higher. September Retail Sales figures are due on the European economic calendar. Later, the US employment report for October could heighten market volatility, with Nonfarm Payrolls, wage inflation and the Unemployment Rate all scheduled for release.

US Dollar: Today's Percentage Moves

Today's percentage moves in the US Dollar (USD) against the major currencies listed appear below. The Australian Dollar recorded the largest decline against the US 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 displayed in the heat map. Select the base currency in the left-hand column and the quote currency in the top row. Selecting the US Dollar on the left and following its row across to the Japanese Yen, for instance, gives the percentage change for USD (base)/JPY (quote) in the corresponding cell.

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

Wednesday's sharp fall in crude oil prices, following the Republicans' defeat in the US midterm elections, left the USD facing heavy selling. Demand for safe havens returned on Thursday, helping the currency hold firm against its peers. The Nasdaq Composite dropped more than 6% that day; declines in the Dow Jones Industrial Average and S&P 500 stood at 3.4% and 4.4%, respectively. US stock index futures are mixed early Friday. Oil prices are edging higher following Thursday's strong rebound.

Speaking to reporters at the White House, US President Donald Trump said Iran was not undertaking any activity 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,”

65K is the market forecast for October's increase in US Nonfarm Payrolls, following September's 29K gain. The US Unemployment Rate is expected to stay at 4.2%.

US payrolls: Fed inflation focus remains central

With the latest US payroll data 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,”. The bank calls the release “one of the most important pieces of economic data” as 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.” Its 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,”. This suggests that continued labour market strength would leave the forthcoming price figures central to the Fed's policy discussions.

Gold reached a new two-week peak near $4,150 on Thursday, then surrendered much of the advance to finish below $4,100. Selling pressure persists early Friday, with the metal trading below $4,050 and down more than 1% on the day.

A 25 basis point (bps) interest rate increase to 4% was announced by the Bank of England (BoE) following its November policy meeting. At the press conference, BoE Governor Andrew Bailey said another rise in the bank rate may be warranted unless progress is made towards resolving the Middle East conflict. GBP/USD remains under selling pressure on Friday, trading near 1.3400 and down about 0.35% on the day after Thursday's modest loss.

Thursday brought an end to a three-day run of gains for EUR/USD. The pair is falling further in Friday's European morning, trading below 1.1200.

USD/JPY is holding steady in a tight range just below 158.00, following a decline of about 0.5% on Thursday.

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

Nonfarm Payrolls: Key Questions

What do Nonfarm Payrolls measure?

Published within the monthly employment report from the US Bureau of Labor Statistics, Nonfarm Payrolls (NFP) track the previous month's change in the number of people employed in the US. The measure excludes the farming industry.

Why do Nonfarm Payrolls matter for Federal Reserve monetary policy?

By indicating how well the Federal Reserve is fulfilling its mandate of full employment and 2% inflation, Nonfarm Payrolls can shape its policy decisions. A comparatively strong NFP reading indicates that more people are working and earning money, which probably means higher spending. Conversely, a weak reading could signal difficulty finding work. To counter high inflation associated with low unemployment, the Fed typically increases interest rates. To revive a stagnant labour market, it generally cuts them.

How does the US Dollar respond to Nonfarm Payrolls?

The US Dollar typically moves in the same direction as Nonfarm Payrolls surprises: a stronger-than-expected reading tends to lift the USD, while a weaker result tends to weigh on it. The link operates through inflation, monetary policy expectations and interest rates. Higher NFP usually points to a tighter Federal Reserve policy stance, which supports the USD.

What is the link between Nonfarm Payrolls and Gold?

Gold prices generally have an inverse relationship with Nonfarm Payrolls. An above-forecast payrolls reading therefore tends to weigh on Gold, while a weaker-than-expected result tends to support it. Stronger NFP usually supports the USD. Since Gold, like most major commodities, is priced in US Dollars, a stronger USD means fewer Dollars are needed to purchase an ounce. Higher interest rates, which stronger NFP typically encourages, also make Gold less appealing relative to holding cash, which at least earns interest.

Why can the market reaction to Nonfarm Payrolls defy expectations?

Other elements of the broader employment report can outweigh Nonfarm Payrolls, which is only one component. For example, when NFP has exceeded forecasts but Average Weekly Earnings has disappointed, markets have sometimes treated the earnings decline as deflationary rather than focusing on the headline figure's potential inflationary impact. The Participation Rate and Average Weekly Hours can also shape the response, although only in exceptional circumstances such as the “Great Resignation” or the Global Financial Crisis.