Non-Farm Payrolls

Friday’s Non-Farm Payrolls (NFP) has a particular significance and excluding any additional action from Draghi and the ECB on Thursday, NFP will be the main focus for the financial markets. This month’s figure is crucial, as it will help the Federal Reserve with its decision making, as to when to raise interest rates, after finally ending the asset purchase program in October.

In recent weeks, we have seen mixed economic readings, resulting in some investors questioning whether the central bank is acting prematurely. However, the main focus for the Fed has been the employment numbers. We believe that any figure greater than 216k (economists’ consensus) will result in increased Dollar strength on Friday and could dictate the direction of the Greenback for the rest of the year.

The average reading this year for the US NFP has been 176K, just under the bullish 200k mark. However the latest readings have been above this average (barring last month’s worse than expected 142K) with four consecutive readings above 200K. A bounce back could be expected from last month’s figure, a figure that posted the worst reading since February 2014.

Also to note, this Wednesday we have the ADP non-farm employment change released. Economists’ use the ADP to gain an insight into the all-important NFP figure released at 13:30 this Friday afternoon. Historically the correlation between the ADP and Non-Farms hasn’t always been accurate, however markets will still watch this to gauge an idea of the NFP number on Friday.

For both Dollar buyers and sellers this event poses significant risk, as this will be the last NFP before the Central Bank finally puts an end to its six year long bond buying program. Should we see a positive number, it will add to the speculation that the Federal Reserve will raise interest rates before the Bank of England and more importantly raise them sooner than anticipated injecting substantial strength into the Greenback. However, a less than impressive number could result in the Fed delaying their plans and the Dollar weakening as a result.