NFP Preview: Resilient job growth expected to support USD


It’s been a blockbuster week already, and there is one more big risk event to wrap up the week with the release of tomorrow’s monthly US employment report. Data continues to be key for policymakers after the Fed pushed back against a March interest rate cut. Chair Powell again stated that officials remain data dependent so the NFP data will be crucial in directing bets on rate cuts and with it the direction of the dollar and stocks markets.

Headline non-farm payrolls are seen slowing to around 180,000 from the 216,000 in December. This is less than the three-month average of job gains of 165,000, which is its lowest level since the start of 2021.  Four of the last five headline prints have beaten expectations and revisions are always worth watching.

Other labour market data appear to be relatively strong.  Weekly initial jobless claims were little changed between the December and January nonfarm reference periods and are still averaging in the low-200k range. Layoffs have remained low, while JOLTS job vacancies are falling but remain above pre-pandemic levels.

Otherwise, ongoing wage gains are expected with average hourly earnings unchanged from the pace seen pretty much over the most of the last 12 months. That equates to a steady annual rate of 4.1%. The jobless rate is likely to rise modestly to 3.8% in January which would represent a three-month top but is still not that far away from recent historic lows.

Market Reaction

The Fed more or less closed the door to an interest rate cut in March. The odds have dropped from a two in three chance to now around a one in three bet. This have given a lift to the dollar which is threatening to break to the upside with a fifth straight week of gains.

A strong set of jobs data could cement this move and also further dent stocks which have been making fresh record highs recently. On the flip side, a slower pace of job gains and wage growth might reignite those calls for an early rate cut and see the greenback remain in its two-week range.