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).”
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.
Source: https://www.fxstreet.com/news/nonfarm-payrolls-set-to-grow-moderately-in-december-as-markets-assess-fed-rate-cut-bets-202601090500
