EUR/USD dips briefly after upbeat US jobs data trims Fed rate-cut bets
- EUR/USD dips briefly after a stronger-than-expected US jobs report boosts the US Dollar.
- January NFP beats estimates, while the Unemployment Rate ticks lower to 4.3%.
- Wage growth surprises on the upside, keeping markets cautious on near-term Fed rate cuts.
EUR/USD came under brief pressure on Wednesday as a surprisingly firm US jobs report boosted the US Dollar (USD) and weighed on the Euro (EUR). At the time of writing, the pair trades around 1.1875, after sliding about 68 pips to an intraday low near 1.1833 in the immediate reaction to the data.
US Nonfarm Payrolls (NFP) rose by 130K in January, beating market expectations of around 70K and coming in above December’s revised 48K increase, while the Unemployment Rate edged down to 4.3% from 4.4%.
On revisions, the Bureau of Labor Statistics (BLS) said the seasonally adjusted level of total Nonfarm employment for March 2025 was revised down by 898K, while total job growth for 2025 was cut to 181K from a previously reported 584K, highlighting a much weaker underlying hiring trend last year than earlier estimates suggested. The BLS also noted that average monthly job growth in 2025 was just 15K.
On the earnings front, Average Hourly Earnings rose by 0.4% MoM in January, up from 0.1% in the prior month and above the 0.3% market forecast, while the annual pace held steady at 3.7% YoY, topping expectations of 3.6%.
The data dampen near-term rate-cut expectations and reinforce the case for the Federal Reserve (Fed) to stay on hold for longer before resuming easing, with interest-rate futures now almost fully pricing the policy rate to remain unchanged in the 3.50%-3.75% range at both the March and April meetings, according to the CME FedWatch Tool.
The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is trading flat near 96.95, after slipping to an intraday low around 96.49 earlier in 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.