What to Expect From July’s NFP Figures

Jobs market

Jobs market

The dollar has been dominating on the charts for the past few weeks. It has hit monthly highs against some of its counterparts, with EUR/USD trading at its 8-month lows below 1.3400 and GBP/USD at its highest since November 2008.

Part of its gains can be attributed to the market’s flight to safety as geopolitical tensions between Russia and Ukraine, Israel and Gaza heightened in the past few weeks. However, we cannot discount the improvements we have been seeing in the US economy as well. On Tuesday, we were treated to a better-than-expected GDP report for Q2 2014 which came in at 4.0% versus the 3.1% forecast. Heck, even Federal Reserve officials can’t help but take notice.

In case you missed it, the most recent FOMC statement released earlier this week revealed that key central bank officials see inflation picking up, the labor market improving, and consumer spending finally gaining momentum.

However, the Federal Reserve was still cautious noting that despite the unemployment rate looking a lot better, the labor market is still far from where the Fed wants it to be.

This is why the NFP report for July is important for market participants. It can either boost the central bank’s optimism on the jobs market and consequently lead them to start planning rate hikes, or it can give them one more reason to hold off tightening.

Later today at 12:30 pm GMT, it is expected that the report would come in at 231,000 to follow the 288,000 job gain we saw in June. The unemployment rate is seen to remain steady at 6.1%.

A lot of naysayers though, are bracing for a number lower than the consensus as some leading indicators have failed to impress. For one, the ADP’s own version of the official data was at 218,000 and lower than the 281,000 forecast. Challenger Job Cuts rose by 24.4% during the month and more people filed for unemployment benefits at 2.539 million from 2.509 million last week.

Don’t get too excited shorting the dollar just yet though. A few analysts argue that we don’t need to see a figure higher than 231,000 for the currency to remain afloat. They say that as long as the actual number comes in more than 225,000 and the unemployment rate doesn’t rise, the dollar may just be able to stand its ground against its counterparts!

To contact the reporter of this story; Jonathan Millet at john@forexminute.com.