US NFP Forecast: Nonfarm Payrolls expected to grow below 200K in December for third straight month

• US Nonfarm Payrolls are forecast to rise by 170K in December after November’s 199K increase.
• The US jobs report could influence the market pricing of the Fed rate outlook and the US Dollar valuation.
• The United States employment data will be released by the Bureau of Labor Statistics at 13:30 GMT.

The high-impact Nonfarm Payrolls (NFP) data from the United States (US) will be published by the Bureau of Labor Statistics (BLS) on Friday at 13:30 GMT.

What to expect in the next Nonfarm Payrolls report?

The US labor market report is expected to show that the economy created 170,000 jobs in the last month of 2023, down from a job addition of 199,000 in November. The Unemployment Rate is seen ticking up to 3.8%. A closely-watched measure of wage inflation, Average Hourly Earnings, is forecast to retreat to 3.9% in the year through December, a tad down from the 4% increase registered in November.

The US labor market data is crucial to the US Federal Reserve (Fed) interest rate outlook for 2024, and thus it could have a significant impact on the US Dollar (USD) valuation.

Amidst cooling inflation in the US, markets price in that the Fed is done with its tightening cycle, expecting interest rate cuts as early as March. The probability for a March Fed rate cut currently stands about 65%, according to CME Group’s FedWatch Tool.

Fed rate cut bets rose substantially after the Fed’s revised Summary of Economic Projections (SEP) showed in December that policymakers forecasted a total of 75 basis points reduction in the policy rate. Moreover, Fed Chairman Jerome Powell acknowledged that officials have started to talk about when it will be appropriate to cut the policy rate. Powell further added that they are very focused on “not making the mistake of keeping rates too high too long.” Regarding the labor market conditions, “job gains have moderated but remain strong and the unemployment rate remains low," the Fed said in the policy statement.

On a hawkish note, Chicago Fed President Austan Goolsbee and Cleveland Fed President Loretta Mester both argued in late December that the markets have gotten ahead of themselves on likely interest rate cuts. These comments, however, did little to nothing to alter the expectations of a March rate reduction.

Previewing December jobs report, TD Securities analysts said that they expect a steady 150,000–200,000 growth in Nonfarm Payrolls for the third straight month and added:

“We anticipate continued weakness in the information/tech and finance sectors, while government jobs likely stayed perky. We also look for the Unemployment Rate to rebound by a tenth after unexpectedly dropping to 3.7% in Nov. Wage growth likely printed 0.3% m/m.”

Meanwhile, private sector employment in the US rose by 164,000 in December and annual pay was up 5.4%, data published by Automatic Data Processing (ADP) showed on Thursday.

How will US November Nonfarm Payrolls affect EUR/USD?

The Nonfarm Payrolls, a significant indicator of the US labor market, will be published at 13:30 GMT. EUR/USD gained more than 1% in December and touched its highest level since July at 1.1140 before staging a technical correction to begin 2024. The US employment data could trigger a big reaction and help investors determine the next directional bias for the main currency pair.

An encouraging NFP headline print, between 200,000 and 250,000, combined with an elevated wage inflation reading could prompt investors to reassess Fed rate cut bets, adding legs to the ongoing US Dollar recovery while weighing on EUR/USD. Conversely, the USD could come under renewed selling pressure should the data disappoint and affirm dovish Fed prospects. Given the market positioning, however, a USD sell-off on a weak NFP figure could remain short-lived.

Eren Sengezer, Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“EUR/USD faces immediate support at 1.0930-1.0920, where the Fibonacci 50% retracement level of the latest uptrend and the 200-day Simple Moving Average (SMA) are located. In case the pair starts using that area as resistance, technical sellers could remain interested. In this scenario, 1.0880 (Fibonacci 61.8% retracement) and 1.0830 (static level) could be set as the next bearish targets.

On the upside, 1.0970-1.0980 (100-day SMA, Fibonacci 38.2% retracement) aligns as immediate resistance ahead of 1.1020-1.1030 (20-day SMA, Fibonacci 23.6% retracement) and 1.1120 (end-point of the latest uptrend).”