EUR/USD strengthens as mixed US labor data and hopes for a US-Iran deal pressure the Greenback.
- EUR/USD strengthens as mixed US labor market data keeps pressure on the US Dollar
- Markets remain cautiously optimistic over a potential US-Iran deal despite ongoing tensions around the Strait of Hormuz.
- The US Dollar Index slides back toward pre-war levels as safe-haven demand eases.
The Euro (EUR) strengthens against the US Dollar (USD) on Friday as the Greenback remains under pressure following mixed US labor market data. At the time of writing, EUR/USD is trading around 1.1777, up roughly 0.44% on the day.
Data released by the US Bureau of Labor Statistics (BLS) showed that Nonfarm Payrolls (NFP) increased by 115K in April, beating market expectations of 62K but slowing from March’s 185K gain (revised from 178K). Meanwhile, the Unemployment Rate held steady at 4.3%, in line with market expectations.
Average Hourly Earnings rose 0.2% MoM in April, missing expectations of 0.3% and matching the previous reading. Annual wage growth accelerated to 3.6% from 3.4%, though it remained below the 3.8% forecast.
Taken together, the data is expected to support the Federal Reserve’s cautious approach, reinforcing expectations that policymakers may remain patient before resuming monetary policy easing, particularly as upside risks to inflation have risen amid elevated Oil prices and ongoing tensions in the Middle East.
However, markets remain cautiously optimistic that the US and Iran could eventually reach a deal to end the war, despite fresh reports of clashes between US and Iranian forces near the Strait of Hormuz.
US President Donald Trump downplayed the latest tensions on Thursday, saying the ceasefire remains in place as Washington awaits Iran’s response to the latest US proposal, with Tehran expected to deliver its reply through Pakistani mediators in the coming days.
This cautious optimism is weighing on the Greenback, which has slipped back toward pre-war levels as investors scale back safe-haven demand for the US Dollar. As a result, EUR/USD remains on track to end the week in positive territory for the second consecutive week.
The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 97.90, down roughly 0.40% on the day.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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