Nonfarm payrolls is traditionally a very market-moving release but in recent months, the impact on currencies has been limited for a variety of reasons. Investors either anticipated a weak number, predicted a recovery or looked past weakness to recoveries ahead. This month, however, we could see a bigger reaction given the misalignment between market expectations and other data, along with worries about the overall economy. Although this morning’s improvement in jobless claims is a tad misleading due to seasonal adjustments related to the pandemic, there are far more arguments in favor of stronger than weaker payrolls this month.
Between July and August, private payrolls doubled in the U.S., there were fewer job losses in the service and manufacturing sectors, jobless claims declined, continuing claims declined and layoffs eased. Confidence was mixed but that’s no surprise given the uptick in new virus cases in July and August. Yet, economists are looking for job growth to slow to 1.35 million from 1.76 million. The unemployment rate is expected to improve but average hourly earnings growth may stagnate. We expect the dollar to have a bigger reaction to a weak number than a strong one. Market sentiment is beginning to turn, the outlook for the economy is uncertain and if data misses, investors will worry that it will deteriorate in the fall. A good number, on the other hand, may not help the dollar or stocks much if they are eyed with skepticism.
Arguments in Favor of Stronger Payrolls
Arguments in Favor of Weaker Payrolls
