Nonfarm Payrolls set to grow moderately in December as markets assess Fed rate cut bets

• Nonfarm Payrolls are expected to rise by 60,000 in December after the 64,000 increase recorded in November.
• The Unemployment Rate is seen edging lower to 4.5% from 4.6%.
• The labor market data could influence the market pricing of the Fed’s policy outlook.

The United States (US) Bureau of Labor Statistics (BLS) will release the Nonfarm Payrolls (NFP) data for December on Friday at 13:30 GMT. 

The US Dollar (USD) will likely experience heightened volatility as the employment report could provide key clues about how the Federal Reserve (Fed) will approach policy-making in the new year.

What to expect from the next Nonfarm Payrolls report?

Economists expect Nonfarm Payrolls to rise by 60,000 in December following the 64,000 increase recorded in November. In this period, the Unemployment Rate is seen edging lower to 4.5% from 4.6%, while the annual wage inflation, as measured by the change in the average hourly earnings, is forecast to tick up to 3.6% from 3.5%.

The monthly report published by the Automatic Data Processing (ADP) showed that private sector payrolls rose by 41,000 in December following the 29,000 decline recorded in November. Additionally, the Employment Index of the Institute for Supply Management’s Services Purchasing Managers’ Index (PMI) climbed to 52 after staying in contraction territory, below 50, for six consecutive months.

Previewing the employment report, TD Securities analysts said: “We look for job gains to stabilize at around the 50k mark over the last two months, with private payrolls printing a 50k gain in December as the government likely shed 10k jobs over the same period.”

“We also expect the unemployment rate to normalize to 4.5% after seeing a shutdown-driven jump to 4.6% in November. Avg. hourly earnings likely rose 0.3% m/m and 3.6% y/y,” they added.

How will the US December Nonfarm Payrolls data affect EUR/USD?

The US Dollar ended the year on a bullish note and kept its footing to begin 2026. Although the Fed adopted a dovish stance at the December policy meeting, market participants see a strong chance of the US central bank to hold the interest rate unchanged at the January meeting. According to the CME FedWatch Tool, investors are currently pricing in a less than 15% chance of a 25 basis points rate cut this month.

Nevertheless, the employment data could still influence the odds of a rate cut in March, which currently stands around 45%, and trigger a significant market reaction.

Earlier in the week, Richmond Federal Reserve Bank President Thomas Barkin said rate decisions will need to be "finely tuned," given risks to both unemployment and inflation goals. Barkin noted that the unemployment remains low, but added that they don’t want the job market to deteriorate further. Meanwhile, Minneapolis Fed President  Neel Kashkari said that the job market is clearly cooling and added there is a risk the Unemployment Rate can “pop from here.”

Rabobank analysts note that the market will be looking to fine-tune its expectations regarding the timing of the next Fed rate cut.

“Currently, the consensus expects steady policy to be maintained this month. Indeed, in view of the split within the FOMC, market pricing suggests risk of steady policy potentially into the spring. A soft payrolls report this week would undermine the USD. That said, we would expect the USD to again exhibit safe haven behaviour this year meaning the potential of support for the greenback. On balance, choppy trading seems likely as the market digests this year’s various events,” they explain.

A significant upside surprise in NFP, with a reading above 80,000, combined with a drop in the Unemployment Rate, could cause investors to lean toward another policy hold in March and boost the USD with the immediate reaction. In this scenario, EUR/USD could come under heavy bearish pressure heading into the weekend. Conversely, a disappointing NFP print of 30,000 or less could trigger a USD sell-off and allow EUR/USD to turn north.  

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

“The Relative Strength Index (RSI) indicator on the daily chart dropped below 50 for the first time since late November and EUR/USD closed below the 20-day SMA for four consecutive days, reflecting a buildup of bearish pressure. In case the pair drops below the 100-day Simple Moving Average (SMA), currently located at 1.1665, and confirms that level as resistance, technical sellers could remain interested. In this scenario, 1.1600 (round level) could be seen as an interim support level before 1.1560 (200-day SMA).”

“On the upside, 1.1740 (20-day SMA) acts as dynamic resistance. If EUR/USD manages to stabilize above this level, it could gather recovery momentum and target 1.1800 (static level, round level), followed by 1.1870 (static level).”