US NFP Forecast: Nonfarm Payrolls gains expected to cool in April

• US Nonfarm Payrolls are forecast to rise by 243K in April, down from March’s 303K gain.
• The United States Employment report will be released by the Bureau of Labor Statistics at 12:30 GMT.
• The US Dollar looks to employment data after the Fed signaled its intention to hold rates higher for longer on Wednesday.

Following Wednesday’s US Federal Reserve (Fed) policy announcements, attention turns toward the high-impact Nonfarm Payrolls (NFP) data, slated for release on Friday at 12:30 GMT.

The US labor market data will be published by the Bureau of Labor Statistics (BLS) and will help determine the scope and timing of the Fed interest rate cuts this year, having a significant impact on the market sentiment and the US Dollar in the near term.

What to expect in the next Nonfarm Payrolls report?

The Nonfarm Payrolls report is expected to show that the US economy added 243,000 jobs last month, sharply lower than the 303,000 job creation seen in March.

The Unemployment Rate is set to stay unchanged at 3.8% in the same period. Meanwhile, Average Hourly Earnings, an important gauge of wage inflation, is expected to extend its downtrend, foreseen to grow by 4.0% in the year through April after rising 4.1% in the twelve months to March.

The headline NFP number combined with the wage inflation data will be closely scrutinized to gauge the Fed rate cut timing after Chair Jerome Powell on Wednesday kept everyone guessing about the same.

The world’s most powerful central bank held the Fed Funds Rate in the range of 5.25% to 5.5% following its May policy meeting. The Fed decided to cut the Treasury runoff from its balance sheet to $25 billion from $60 billion.

Powell acknowledged a broader shift in the Fed’s thinking toward holding borrowing costs at a two-decade high for longer, adding that central bankers want “greater confidence” that inflation is falling toward 2%.

A recent series of economic data from the US justified the Fed’s higher rates for a longer stance, especially after hot core PCE inflation data and a higher-than-expected increase in the US Employment Cost Index (ECI) for the first quarter. Data published by the BLS on Tuesday showed that the ECI, the broadest measure of labor costs, increased by 1.2% last quarter after rising by 0.9% in the fourth quarter.

However, Fed Chairman Jerome Powell ruled out a rate hike as the next move. This, paired with the Fed’s plans to slow the speed of its balance sheet drawdown, was perceived as a dovish lean by the bank toward eventual rate cuts later this year. The probability of the first Fed rate cut, likely in September, rose to 53% from about 47% pre-Fed announcements, according to the CME Group’s FedWatch Tool.

Meanwhile, the US private sector added 192,000 jobs in April, a modest decrease from the upwardly revised 208,000 figure in March, the ADP reported on Wednesday. The data beat the analysts’ estimates of a 175,000 job addition. It’s worth mentioning that NFP has outperformed ADP for eight straight months. On the contrary, US job openings fell by 325,000 to 8.488 million on the last day of March, the BLS said the same day. The market forecast was for an 8.69 million readout.

Previewing the April jobs report, BBH analysts said: “Data highlight will be the jobs report Friday. Consensus sees 250k jobs added vs. 303k in March, while the unemployment rate is expected to remain steady at 3.8%. The pace of wage growth, a key driver of core services CPI inflation, will also draw plenty of attention. Average hourly earnings are expected to slow a tick to 4.0% y/y.”

How will US April Nonfarm Payrolls affect EUR/USD?

Dovish Fed signals smashed the US Dollar across the board alongside the US Treasury bond yields, driving the EUR/USD pair back above the 1.0700 threshold. The focus now shifts to the US NFP report for a fresh directional move in the main currency pair.

A strong-than-expected NFP headline figure combined with hotter-than-expected wage inflation data could push back against expectations of a September Fed rate cut, lifting the US Dollar against the Euro back toward 1.0600. Conversely, if the US employment data strongly indicates loosening labor market conditions, the Greenback could see a fresh leg down on a potential confirmation of rate cuts this year. In such a case, EUR/USD could advance through the 1.0800 threshold.

Dhwani Mehta, Analyst at FXStreet, offers a brief technical outlook for EUR/USD: 

“The EUR/USD pair is struggling at around the 21-day Simple Moving Average (SMA) at 1.0715, while the 14-day Relative Strength Index (RSI) sits beneath the 50 level, suggesting that downside risks remain in play.”

“Buyers need to find a strong foothold above 1.0800, the convergence of the 200-day and 50-day SMAs, to unleash further recovery. The next upside barrier for EUR/USD will then be seen at the 100-day SMA at 1.0842. Conversely, the initial demand area is seen at the April 16 low of 1.0619, below which the 1.0550 psychological level will be tested en route to the November 2023 low of 1.0517,” Dhwani adds.