NONFARM PAYROLL: A DECISIVE GUIDE FOR FED'S POTENTIAL EASING

• Market participants expect the headline figure to be around +170k, a drop from the +199k reported in November.
• US private employers surpassed expectations by hiring more workers
• If the NFP (Nonfarm Payrolls) report shows more jobs added than anticipated, it could upset the markets.

Inflation indicators in the US, including the labor market, were on a downtrend in the last few months of 2023. Therefore, there is a chance this trend will continue. Meanwhile, a surprise figure could cause a lot of volatility in the market.

Following the Federal Reserve's interest rate hikes totaling 525 basis points since March 2022, the labor market is progressively decelerating. According to Wednesday's government report, job openings plunged to almost a three-year low in November, with 1.40 vacancies for each unemployed individual. Total nonfarm payrolls are expected to have grown by 170,000 jobs, a slight decrease from the prior month's increase of 199,000.

Market Participants Anticipate a Drop in the Headline Figure

The most recent labor market indicators have shown a strong labor market. In December, US private employers surpassed expectations by hiring more workers, indicating ongoing strength in the labor market to support the economy. The ADP National Employment Report revealed a substantial increase of 164,000 jobs in private payrolls, marking the most significant monthly rise since August. November's data was revised slightly downward, reporting 101,000 jobs added instead of the previously stated 103,000. Reuters' polled economists had predicted a more conservative growth of 115,000 in private payrolls.

Meanwhile, market participants are looking at a headline figure of around +170k in this Friday's report. This would be a slight drop from the +199k reported in November. Still, the US labor market remains strong, slightly below its 3-month average of 204K.

The NFP Figure Will Likely Affect Fed Rate Cut Expectations

Investors are expecting interest rates to go down. If the NFP (Nonfarm Payrolls) report shows more jobs added than anticipated, it could upset the markets. Some traders are doubting their view of the Federal Reserve cutting rates soon. The start of 2024 has been good for the dollar because bets on rate cuts are decreasing, and concerns about tensions in the Middle East are making things more uncertain.

Consequently, the US dollar is returning some of the money it lost at the end of the year and might keep doing so if the US economy adds more jobs than people thought in December.

How Will the Job Numbers and Investor Caution Impact the Dollar?

If investors get a jobs report that's not too good but not too bad either, they might choose to be careful, at least until it's clearer which way the economy is going. This careful approach would probably make it harder for Wall Street to benefit from the January effect, and the dollar might stay relatively stable for a while.

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