Nonfarm Payrolls set to show US labor market weakened in May as tariff policy weighs

• Nonfarm Payrolls are expected to rise by 130K in May, down from the 177,000 increase recorded in April.

• The United States Bureau of Labor Statistics will publish the employment report at 12:30 GMT.

• The US employment report could influence the odds of a July Fed rate cut, rocking the US Dollar.

Nonfarm Payrolls (NFP), one of the most high-impact economic data releases in the United States (US), is expected to show a further cooling of the jobs market. The main question surrounding the report is whether it will show that labor market conditions are healthy enough for the Federal Reserve (Fed) to continue to wait before cutting the policy rate.

The US Bureau of Labor Statistics (BLS) is due to publish the NFP data for May at 12:30 GMT. The data could have a strong bearing on the US Dollar (USD) performance in the near term.

What to expect from the next Nonfarm Payrolls report?

Economists expect the Nonfarm Payrolls to show a 130,000 job gain in May after the better-than-forecast 177,000 increase reported in April. The Unemployment Rate (UE) is seen unchanged at 4.2%.

Average Hourly Earnings (AHE), a closely watched measure of wage inflation, are expected to rise by 3.7% year-over-year (YoY) in April, following a 3.8% increase in March and April.

Previewing the April employment report, TD Securities analysts said: “Job growth should have cooled to its slowest pace in three months, with payrolls registering a below-consensus 110k gain in May.”

“We anticipate cooling in job creation for the goods and government sectors, as well as for leisure & hospitality. The Unemployment Rate is expected to stay unaltered at 4.2% for a second consecutive month, while wage growth likely picked up to 0.3% m/m,” they added.

How will US April Nonfarm Payrolls affect EUR/USD?

The US Dollar (USD) struggles to stay resilient against its rivals this week as investors await clarity on US President Donald Trump’s trade policy. Additionally, disappointing macroeconomic data releases, such as the Automatic Data Processing’s (ADP) monthly report that showed a meager increase of 37,000 in private sector payrolls, contributed to the USD decline.

In response to the weak ADP data, US President Trump criticized Fed Chairman Jerome Powell of being too late and called upon him to lower interest rates.

Meanwhile, Minneapolis Fed President Neel Kashkari acknowledged earlier this week that the labor market is showing some signs of slowing down. However, Kashkari argued that the central bank must still stay in a wait-and-see mode to assess how the economy responds to the uncertainty. 

Similarly, Atlanta Fed President Raphael Bostic said that the best approach for monetary policy is “patient,” adding that the job market appears to be broadly healthy despite showing some signs of weakness.

In case the NFP data disappoints with a reading below 100,000, investors could reassess the possibility of a Fed rate cut in July and cause the USD to come under renewed selling pressure. In this scenario, EUR/USD is likely to gather bullish momentum heading into the weekend. 

Conversely, a significant positive surprise, with an NFP print between 160,000 and 200,000, or higher, could convince markets of at least two more meetings (June and July) in which the Fed will hold interest rates steady. The USD could gather strength with the immediate reaction to such a print and trigger a leg lower in EUR/USD. 

According to the CME FedWatch Tool, markets are currently pricing in about a 30% probability of a 25 bps reduction in the policy rate in July.

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“EUR/USD clings to a bullish bias in the near term, with the Relative Strength Index (RSI) indicator on the daily chart holding comfortably well above 50. Moreover, the pair continues to pull away from the 20-day Simple Moving Average (SMA), currently located near 1.1300, after stabilizing above it in late May.”

“On the upside, 1.1500 (static level, round level) aligns as the first resistance level for EUR/USD ahead of 1.1575 (April 21 high) and 1.1700 (static level from February 2021). Looking south, supports could be spotted at 1.1300 (20-day SMA), 1.1250 (Fibonacci 23.6% retracement of the January-May uptrend, 50-day SMA) and 1.1050 (Fibonacci 38.2% retracement)."