Non Farm Payrolls (NFP) is one of the most important and influential economic reports for the currency markets. The next NFP report will be released this Friday 1st of April at 12:30 GMT by the US Bureau of Labor Statistics. NFP expresses the paid jobs added or lost in the US economy excluding the farm sector as agriculture varies throughout the year.

Why do investors focus on the NFP monthly figures? NFP is a significant indicator for the health of the US economy as it provides insights into the country’s Labor sector, which is a traditionally sensitive topic. When NFP figures are higher it means that businesses are hiring more employees and this is a sign of growth. An increased economic activity is an indication that the world’s largest economy is expanding. Confidence in hiring and growth expectations has a significant impact on consumer spending. Consumer spending is the main driver of the US economy and when consumers are optimistic there is more demand for goods and services. Thus, sectors such as housing, construction, manufacturing and retail sales are expected to show higher gains. NFP data is also of high significance as political forces pressure the Fed to keep employment at healthy levels.

Optimism about the US recovery is improving after revised GDP in the fourth quarter showed an acceleration of US growth. GDP increased by 3.1%, which is a significantly higher rate compared to the 2.6% increase of the previous quarter. It is interesting to see if the increased GDP growth will translate to an increase in employment. Or is the US economy still stuck in jobless recovery?

The Labor Department’s Bureau of Labor Statistics revealed a greater than expected figure of 192 thousand new jobs added in February. Unemployment rate also fell to 8.9%, the lowest level since April 2009. Speculators are expecting NFP in March to reveal the creation of 201 thousand new jobs and the unemployment rate to remain unchanged. US ADP employment report revealed an increase of 201K new jobs for the month of March further supporting NFP predictions. Friday’s data is significant as it may influence the Federal Reserve’s monetary policy. Fed Chairman Ben Bernanke said that strong evidence is needed in order to convince the Fed that the US economy is self-sustainable. Once the Fed is convinced that the job sector is strong then the Fed may begin normalizing its monetary policy. Will Friday’s jobs data be the sign the Fed is looking for?

Analysts expect the NFP report to have its greatest impact on the EURUSD pair. Will positive NFP numbers support the dollar and be a catalyst for a reversal in the EURUSD trend? An above expectations figure may push the dollar higher and knock the pair lower. Expectations are set higher for March after February’s NFP solid figures. If data disappoints the markets, then we may witness the pair hitting a fresh yearly high. Whatever the outcome, the end of the week will definitely add color to the US economic picture.
After the highly anticipated NFP report is released, volatility should surge leading to large price swings in currency pairs. It is an excellent time to trade the currency markets. Be prepared for volatile and adventurous trading!

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Written by Nikoletta Panteli
Currency strategist at Easy Forex