nfp nfp nfp

US Non-farm Payrolls (NFP): The next test for US yields and the dollar

Forex 4 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  The US economy may be in an economic slowdown, but it is not crashing. The lack of forward guidance from the Fed has meant that every data point and every Fed commentary will be scrutinized to its best extent in order to get more light on the future path of Fed rates. The jobs report from the US due this Friday will likely be a key input, given that a tight labor market remains one of the key pillars of strength for the US economy. Particularly, wage growth remains on watch as it holds the potential to reverse the weakness of the US dollar if US Treasury yields rise.

What are the non-farm payrolls?

The non-farm payrolls is one of the most closely-watched monthly indicators released by the US Department of Labor, usually on the first Friday of every month. The release includes the number of people currently in employment as well as the unemployment rate and wage growth in the US. While it is always important to watch this data for a better understanding of the dynamics of the US labor market, it has garnered increasing attention lately given it is the key pillar of strength in the US economy amid increasing pessimism on the growth front and the lack of forward guidance from the Fed.

Expectations from July NFP and what it could mean for the Fed policy?

There is no denying that the US labor market is slowing, but that is to be expected after a post-pandemic surge. There are still two vacancies for every unemployed American, and small businesses are facing heavy staff shortages. This means the problem is still more on the supply side of labor, rather than the demand side, suggesting that the economy is still in a position to absorb further Fed tightening.

The recent surge in weekly jobless claims points has hinted that the tight labor market may be loosening, but the 4-week average for claims, which smooths weekly volatility, was still at sub-300k levels in the week ended July 23. The ISM reports also suggested that even if the US economy is slowing, it is not collapsing. The ISM factory employment index ticked higher to 49.9 in July from 47.3 previously, pressured mainly due to the lack of workers available. This potentially raises the possibility of a better-than-expected NFP print as well on Friday. Bloomberg consensus is suggesting gains of 250k in nonfarm payrolls and 228k in private payrolls, with unemployment rate steady at 3.6% and average hourly earnings slowing slightly to 4.9% y/y from 5.1% previously.

Meanwhile, sustained growth in wages also supports the case for high-for-longer inflation. Higher salaries mean more money in American consumers’ pockets, and that could possibly mean sustained demand levels – again providing room to Fed to stay hawkish.

The other key thing to note from the NFP data would be the composition of the labor market, especially to understand if the gains in payrolls will be durable. Labor market growth is currently concentrated in the leisure and hospitality business, which remains exposed to a cyclical slowdown in discretionary spending. Hiring in the construction sector is likely to be slower due to the higher mortgage rates impeding housing sector growth.

Markets are mispricing Fed expectations

What Powell’s lack of forward guidance from the July meeting has meant is that the markets are now pricing in peak Fed hawkishness. The terminal rate is now priced in at 3.25% and markets expect the Fed to cut rates next year. We believe that the path of Fed rate hikes from here is likely to be more volatile, and there is some scope for upward repricing. Friday’s NFP data could be one of the triggers.

A stronger-than-expected outcome on both the headline jobs number and wages could raise the expectations of another 75bps rate hike in September, although we still have a lot more data and Fed speakers on tap before we get closer to that meeting. That should bring the US yields back higher and provide a boost to the US dollar. A high wage growth, even with a modest headline number, could still mean the Fed could stay focused on the inflation problem, given that the lower number of jobs only means that the tight labor market is loosening. However, if wage growth is slower-than-expected, it could further dent rate hike expectations and provide more legs to the weakening dollar momentum.

There is some possibility that the USD could surge even if yields are lower and US data is weak if the market forecasts for a soft landing transition to one for a harder landing and that ignites safe haven flows into the dollar. The US dollar has recently been more correlated with financial conditions and direction in US yields, but if yields are lower while market fear levels pick up the USD might prove strong against pro-cyclical currencies.

Source: Bloomberg, Saxo Markets
Source: Bloomberg, Saxo Markets

Latest Market Insights

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.