Non-Farm Payrolls and Forex: Everything You Need to Know

Non-Farm Payroll is a critical US economic indicator that impacts the US Dollar in the forex market. Any appreciation/depreciation in USD prices leads to high volatility in all the major currency pairs. In this article, we discuss NFPs and how they affect the forex market. What is Non-Farm Payroll?

Non-Farm Payrolls is a US economic indicator that measures the non-farm related job changes in the country during the previous month. NFP reports are released every month by the United States Department of Labor, on the first Friday of that month, at 8:30 am EST. 

A steadily expanding NFP is an indication of a growing economy. 

How does NFP affect the forex market?

The relationship between the jobs created, interest rates and the forex market is directly proportional. 

If more jobs are created, the economy is considered strong, and interest rates increase with a positive impact on the USD currency pairs in the forex market. 

However, if fewer jobs are being created and wages are low, the US Federal Reserve decreases interest rates to help revive the economy and stimulate growth. 

• When the Non-Farm Payroll growth is equal to or more than expected, the US increases its interest rates, which leads to more forex traders buying the USD, resulting into a USD price appreciation in the forex market
• When the Non-Farm Payroll growth is less than expected, the US decreases its interest rates, which leads to more forex traders selling the USD, resulting into a USD price depreciation in the forex market

Hence, all major currency pairs where the USD is included are affected by the Non-Farm Payroll release. When the USD appreciates, the exchange rate rises and the currency paired against the USD falls.

What are the most affected currency pairs by the Non-Farm Payrolls?

1. EUR/USD

When a positive Non-Farm Payroll is released, the USD strengthens against the Euro and the EUR/USD currency pair falls temporarily. Since the US and Europe are one of the major trading partners of each other, USD appreciation leads to the EU having to spend more money for their imports from the US. 

On the contrary, when a negative NFP is released, the USD weakens against the Euro and the currency pair EUR/USD rises. This results in EU spending less than they used to, for imports from the US as lesser Euros are needed to buy more of USD.   

2. USD/JPY

The Japanese Yen falls against the USD after a positive NFP report release. Since Japan is the USA’s fourth largest goods trading partner, goods from the US become more expensive, leading to Japan paying more for the same imported items than they used to. 

Whereas, a negative NFP report leads to the USD/JPY rising as the Yen strengthens against the US dollar. This results in the US paying more than before for goods imported from Japan and Japan paying less than before for the goods imported from the US.

3. GBP/USD

When the USD strengthens after a positive NFP release against the Pound Sterling, the GBP/USD currency pair falls in the forex market. This results in a drastic impact on the UK economy as the US is UK’s biggest trading partner. Imports become more expensive as more GBP is required to buy 1 USD. 

On the other hand, when the USD weakens after a negative NFP release, the GBP/USD currency pair rises in the market as lesser USD is needed to buy 1 GBP. Imports become cheaper as lesser GBP is ten required to buy 1 USD. 

4. AUD/USD

The US is Australia’s second largest trading partner, and so, when a positive NFP is released and the USD strengthens, the imports from the US become expensive for Australia. On the other hand, a negative NFP release results in the USD weakening and imports becoming relatively cheaper for Australia. However, since AUD’s value heavily depends on Australian exports, the currency pair price does not fluctuate drastically post NFP releases. 

5. USD/CHF

The USD/CHF rises after a positive NFP release since the USD appreciates, leading to more CHF requirement to buy 1 USD. This impacts Switzerland’s trades as exports become cheaper and imports become more expensive. However, if the NFP releases a negative or below expectations number, the USD depreciates and CHF strengthens, raising the USD/CHF exchange rate.

The NFP Forex Trading Strategy

Since the NFP report affects all major currency pairs that include the US dollar, one can place entry or exit orders after the statistics and numbers in the report are released. However, it is advised to wait for a few minutes after the report release to allow the market to consume the information introduced and react accordingly. 

Once the market starts making initial swings, you can start monitoring different currency pairs like USD/JPY, EUR/USD, GBP/USD and more to understand the dominating momentum in the market and enter a trade in that particular direction. 

For example, like this month, if the report is positive with solid numbers and job creations, the USD will appreciate against currency pairs like JPY, EUR and GBP due to the strong trade relations between the countries. In this case –

• You can place a buy order after the currency pair has made its first few initial up-swings and trade along the uptrend 
• You can place a sell order after the currency pair has made its first few initial down-swings and trade along the downtrend

However, if the NFP report is on the negative side, depicting high unemployment, low hourly wages and fewer jobs created in the past month, the USD will start depreciating. 

• Traders can short USD in a downtrend with an expectation of a continued falling market
• Traders can short USD in an uptrend with an expectation of temporary fall in prices but continued rising market 

How is the Euro planning to recover amidst the crisis? 

The European Union has imposed severe economic sanctions on Russia and has also forced restrictive measures against the nation with an expectation to drive the currency back up in the forex markets. Here are a few actions that the EU has already taken to foster Euro’s recovery amidst the crisis:

• Sanctions imposed on state-owned outlets in Russia
• SWIFT ban introduction for seven Russian banks 
• Ban on transactions with Russia’s central bank
• Support package worth 500 million sent to Ukraine to indicate reassurance and support to the country in distress, leading to positive market sentiment for the currency
• Goods import ban from Russia 
• Trade and investment restrictions with respect to infrastructure and economic activities in Russia 
• An imposition of an export ban to Russia on some technologies and goods

Trade with the NFP report today to capture market swings

The Non-Farm Payroll report significantly affects the forex market and contributes to the currency pair's volatility. Start trading with our platform today to experience transparent order execution, convenient order placing and competitive spreads.