Non-agricultural data impacts the foreign exchange market

2023-07-19
Summary:

Non-farm data is an important economic indicator released by the United States every month, usually referring to changes in the non-farm employment population. This data has a significant impact on the foreign exchange market.

The importance of data depends on the focus of the market. In the past, the market was particularly sensitive to some economic data, especially trade data, net capital inflows, gross domestic product, and even leading indicators such as the number of people applying for unemployment benefits for the first time per week, which can be used to make a big stir.

NFP

But at present, the influence of some data has greatly diminished, and investors are beginning to feel numb to the repeatedly high trade deficit, which is no surprise given the net capital inflows that have reached new highs. At present, the market's concern has shifted from the old problem of trade deficits to the problem of inflation, so more attention has been paid to inflation-related data such as the consumer price index and producer price index.


It can be seen that the influence of data will shift with market focus. The only data with enduring influence is the non-agricultural job creation in the US employment report. The non-agricultural employment report is generally known as the "XO" of all economic indicators that can make the foreign exchange market respond. It is the most sensitive monthly economic indicator for the market. The foreign exchange market attaches particular importance to the seasonal adjustment of the monthly employment number changes, which are released by the United States Department of Labor on the first Friday of each month.


This report provides information related to employment derived from two independent surveys, including business surveys and household surveys. The Enterprise Survey is compiled by the Bureau of Labor Statistics in collaboration with the employment safety agency of the state government. The sample includes approximately 380000 non-agricultural institutions, providing information on employment in the non-agricultural sector, average hourly work, and total hour index, also known as the Payroll Survey. Among them, household survey data are from the current population survey conducted by the United States Census Bureau, which mainly takes 60000 households sampled as the survey objects, and then the Bureau of Labor Statistics (BLS) calculates the unemployment rate. Provide information on labor, household employment, and unemployment rates. Non-agricultural employment measures the number of people with income in all non-agricultural industries, such as manufacturing and service industries. Therefore, the number of nonfarm employees can reflect the development and growth of the manufacturing and service industries, and a decrease in numbers indicates that enterprises are reducing production and the economy is entering a depression and recession. When the social economy prospers, consumption naturally increases, and positions in the consumer and service industries also increase. When the number of non-agricultural jobs increases significantly, it reflects that the economic development is quite healthy, and theoretically, it should be beneficial for the exchange rate. Therefore, this data is an important indicator for observing the socio-economic and financial development of the United States. If the data continues to improve in the long term, the US dollar will usually be supported and strengthened.


It can be called "XO" because of its earthshaking ability. Due to the quality of the numbers themselves, they predict the future of the US economy. Therefore, one or two days before the data is released, whenever there is any speculation about this value in the market, the market will be turbulent. Far from saying that, a few months ago, I especially remember that ADP, a survey organization, predicted the non-farm data two days before the release of the non-farm data. The data showed that American companies expected to add 368,000 jobs in June and 122,000 jobs in May, suggesting that the U.S. economy is still very strong. The above data forced many analysts to adjust their original estimates of the nonfarm employment growth in the United States Department of Labor in June; that is, the market dollar was warmly sought after. The significant increase in new employment may consolidate market expectations for another 25 basis point increase in interest rates by the Fed to combat inflation. If a significant increase in employment is accompanied by a decrease in unemployment, Fed decision-makers will be more vigilant, as this may indicate an increase in inflationary pressure. The results were quite disappointing, with only 121,000 nonfarm payrolls increasing in June. As a result, the US dollar was on a roller coaster ride the following week, rising and falling faster. On average, as the first Big data shows in the United States, the number of non-agricultural jobs also fluctuates by about 192 points on average.


Analysts generally believe that nonfarm employment data will have an impact on whether the Federal Reserve decides to cut interest rates in the coming months. The recent series of data releases by the United States, including pending home sales and ISM manufacturing reports, have not changed the market's perception of the US economic outlook.

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