Non-farm Payroll Forecasts and Implications

• Non-farm payrolls are expected to show a decrease compared to May’s 139K increase, with a forecast of 110K for June.
• The U.S. Bureau of Labor Statistics will publish employment data at 12:30 GMT on Thursday.
• This report is crucial as it can significantly influence the U.S. dollar’s performance, providing key insights for the Federal Reserve’s rate decisions.

On Thursday at 12:30 GMT, the Bureau of Labor Statistics (BLS) will reveal important data on Non-Agricultural Payroll (NFP) for June.

The upcoming employment report is highly anticipated as it will help assess the Federal Reserve’s future interest rate decisions and potentially shape the direction of the U.S. dollar.

What to Expect from the Upcoming Non-farm Payroll Report

Economists are predicting an increase of 110,000 jobs in non-farm payroll for June, following a reported increase of 139,000 in May. After sitting at 4.2% in May, the unemployment rate is expected to rise to around 4.3%.

Additionally, the key wage inflation measure, Average Hourly Earnings (AHE), is likely to rise by 3.9% year-on-year in June, which is consistent with the previous month’s pace.

According to a preview from TD Securities, “We anticipate NFP jobs to ease to 125K in June. Indicators suggest a similar slowdown in income as observed in May.”

“It went to 4.2% last month. AHE may have moderated to 0.2% month-on-month from 0.4% (3.8% year-on-year), indicating a risk to June’s employment statistics,” they noted.

Impact of Non-farm Payroll on EUR/USD

Amid fresh concerns regarding President Trump’s major spending bills and tariffs, the U.S. dollar is nearing its lowest level against other major currencies since February 2022.

The market’s outlook on potential Fed rate reductions has been influenced by Chairman Jerome Powell’s cautious remarks made at the European Central Bank (ECB) Forum on Central Banks in Sintra on Tuesday.

“We are taking our time, and as long as the U.S. economy remains robust, caution is advisable,” he remarked.

However, Powell also stated, “I won’t remove any meetings from consideration. It’s hard to say if July is too soon for rate cuts; it really hinges on the data.”

Regarding the data, the latest JOLTS report revealed that job vacancies in the U.S. surged from 374,000 to 7.769 million, greatly exceeding the expected 7.3 million. Additionally, the U.S. ISM Manufacturing PMI improved to 49 in June, up from forecasts of 48.5 and May’s 48.8.

In stark contrast, Wednesday’s Automatic Data Processing (ADP) report indicated a reduction of 33,000 in private sector jobs last month—the first decline since March 2023—following a downward revision of 29,000 in May. The market had anticipated an increase of 95,000.

Currently, traders are pricing in a reduction of 64 basis points this year from the Fed, estimating a 25% chance of movement in July, as indicated by Refinitiv’s interest rate probability.

This makes the June employment figures particularly significant, especially as the Fed continues to rely on a “data-dependent” strategy.

If reports come in below the 100,000 mark along with rising unemployment, this could suggest a weakening labor market, heightening the odds for a Fed rate cut this month.

This scenario might further pressure the U.S. dollar and support a recovery in gold prices after recent lows.

If NFP jobs exceed 150,000 and the unemployment rate holds steady at 4.2%, the data could lead to continued selling pressure on gold, as it may contradict the expectations for more than one Fed rate cut this year.

Dhwani Mehta, a lead analyst at FXStreet, provides a brief technical outlook for EUR/USD.

“The major currency pair could pull back to the 21-day simple moving average (SMA) support at 1.1568, as the 14-day relative strength index (RSI) hovers in overbought territory on the daily chart.”

“Buyers will need to surpass the 1.1909 high to target the September 2021 peak near the psychological level of 1.2000. Conversely, EUR/USD might retest the 21-day SMA at 1.1568 if corrections begin.”

Economic Indicators

Non-farm payroll releases indicate the number of new jobs created in the U.S. in the previous month for all non-farm businesses. These figures are issued by the U.S. Bureau of Labor Statistics (BLS). Monthly payroll changes can be quite volatile and are often subject to significant revisions. Such fluctuations can lead to volatility in the Forex market. Typically, strong readings are seen as bullish for the U.S. dollar, while weaker readings are regarded as bearish, but the previous month’s revisions and unemployment levels are equally relevant. Thus, market reactions depend on how all data in the BLS report is interpreted.

Employment FAQs

Labor market conditions play a vital role in assessing economic health and consequently impact currency valuation. High employment levels generally support consumer spending and economic growth, which can boost the local currency. A tight labor market—where there are more job openings than available workers—can also influence monetary policy, resulting in higher wages.

The pace of wage growth is crucial for policymakers. Increased wages mean households typically spend more, which often leads to rising consumer good prices. Unlike more fluctuating inflation sources, wage growth is considered a stable inflation component, as these increases are less likely to be reversed. Central banks monitor wage growth data closely when shaping their monetary policies.

The emphasis each central bank places on labor market conditions varies based on their objectives. Some central banks explicitly focus on labor market issues alongside controlling inflation. For instance, the Federal Reserve has a dual mandate to foster maximum employment and maintain stable prices, while the European Central Bank (ECB) primarily targets inflation management. Regardless of their specific missions, labor market conditions are critical as they directly correlate with economic health and inflation trends.