Nonfarm Payrolls Forecast: How will July NFP impact US Dollar?

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• US Nonfarm Payrolls are forecast to rise 200K in July vs. 209K seen in June.
• The headline NFP and Average Hourly Earnings are key to the Fed’s rate hike outlook.
• US Unemployment Rate is expected to hold steady at 3.6%.

Following the releases of significant US employment data this week, market participants await the all-important US Nonfarm Payrolls report due this Friday, which could influence the US Federal Reserve (Fed) decision on whether to raise the policy rate again this year.

Follow our live coverage of the market reaction to the US July jobs report.

Private sector employment in the US increased by 324,000 in July, Automatic Data Procession reported on Wednesday. This reading surpassed the market expectation of 189,000 by a wide margin. “The economy is doing better than expected and a healthy labor market continues to support household spending,” said Nela Richardson, chief economist at ADP. In response to the upbeat data, the benchmark 10-year US Treasury bond yield climbed to its highest level since November above 4.1% midweek and the US Dollar Index, which gauges the USD valuation against a basket of six major currencies, advanced to its highest level in nearly a month above 102.50.

Earlier in the week, the US Bureau of Labor Statistics announced that the number of job openings on the last business day of June declined to 9.58 million from 9.61 million in May. Meanwhile, the Employment Index of the ISM Manufacturing PMI survey declined to 44.4 in July from 48.1, showing an ongoing decline in the number of manufacturing jobs.

What to expect in the next Nonfarm Payrolls report?

Markets expect Nonfarm Payrolls to rise 200,000 in July following the weaker-than-forecast increase of 209,000 recorded in June. The Unemployment Rate is anticipated to remain unchanged at 3.6%, while annual wage inflation, as measured by the change in Average Hourly Earnings, is seen edging lower to 4.2% from 4.4%.

The Fed raised its policy rate to the range of 5.25-5.5% following the July meeting. In the post-meeting press conference, Fed Chairman Jerome Powell acknowledged that they were observing sings of labor supply and demand coming into better balance. Powell, however, reiterated that the labor demand was still substantially exceeding supply. Nevertheless, Powell refrained from confirming one more rate increase later in the year and said that they will continue to closely watch jobs and inflation data.

Markets are currently pricing in a nearly-30% probability that the Fed will hike the policy rate one more time before the end of the year. In case there is a significant upside surprise to the NFP in July, a reading at or above 250,000, hawkish Fed bets could dominate the action and help the USD outperform its rivals. If a strong NFP figure is accompanied by a high wage inflation, the USD rally could gather further steam ahead of the weekend. On the other hand, a disappointing NFP print between 100K and 150K could highlight loosening conditions in the labor market and hurt the USD.

Analysts at TD Securities expect an upbeat NFP reading:

“We look for payrolls to stay strong in July, registering a 260k gain, and also reflecting a reacceleration from June’s 209k print. We also look for the unemployment rate to drop again by a tenth to 3.5%, as we are assuming job creation in the household survey will print a similar gain to that of the establishment survey. Average hourly earnings likely advanced 0.3% m/m, with the y/y measure likely dropping to a still-elevated 4.2%.”

When will US June Jobs Report data be released and how could it affect EUR/USD?

Nonfarm Payrolls number, part of the US jobs report, will be released at 12:30 GMT on August 4. EUR/USD has been staying under persistent bearish pressure since touching its highest level since February 2022 at 1.1277 on July 18. The labor market data could influence the USD’s valuation and trigger the next big action in the pair.

As explained above, stronger-than-expected NFP numbers and hot wage inflation data could strengthen expectations of one more Fed hike this year and force EUR/USD to stay on the back foot. Especially after the European Central Bank adopted a cautious stance regarding further policy tightening in the face of growing signs of a slowdown in economic activity.

Alternatively, EUR/USD could stage a rebound if the jobs report unveils a noticeable cooldown in the US labor market in July, causing market participants to lean toward a no-change in the Fed policy.

FXStreet Analyst Eren Sengezer shares his view on EUR/USD short-term technical outlook heading into the jobs report.

“EUR/USD stays dangerously close to 1.0900, where the Fibonacci 61.8% retracement of the June – mid-July uptrend is reinforced by the 50-day and the 100-day Simple Moving Averages. Meanwhile, the Relative Strength Index (RSI) indicator stays below 50, reflecting the lack of buyer interest.”

“A daily close below 1.0900 could open the door for an extended slide toward 1.0830 (static level), 1.0750 (200-day SMA) and 1.0700 (static level, beginning point of the uptrend). Looking north, the pair needs to rise above 1.1000 (static level, psychological level) and start using that level as support in order to stage a consistent recovery toward 1.1080 (20-day SMA) and 1.1150 (static level).”