US Nonfarm Payrolls Forecast: Robust NFP gains in the last two months unlikely to be repeated in February

• US Nonfarm Payrolls are set to rise by 200K in February after January’s stellar 353K gain.
• The United States Bureau of Labor Statistics will release the labor market data at 13:30 GMT.
• Robust employment data could provide some relief to US Dollar buyers.

The all-important Nonfarm Payrolls (NFP) data from the United States (US) is slated for release on Friday at 13:30 GMT. The US labor market data, published by the Bureau of Labor Statistics (BLS), could significantly impact the market’s pricing of when the Federal Reserve (Fed) will start lowering interest rates, eventually influencing the US Dollar’s value.

What to expect in the next Nonfarm Payrolls report?

The Nonfarm Payrolls report is likely to show a jobs addition of 200,000 to the US economy last month, down from January’s whopping 353,000 job gain. The Unemployment Rate is expected to stay unchanged at 3.7% in the reported period. A closely watched measure of wage inflation, Average Hourly Earnings, is set to rise 4.4% in the year through February, a tad slower than the 4.5% increase registered in January.

Market participants will closely scrutinize the headline NFP print and the wage inflation data to determine the timing and the scope of the Fed interest rate cut this year, especially after Fed Chair Jerome Powell delivered less hawkish comments during his testimony on the semi-annual Monetary Policy Report (MPR) before the House Financial Services Committee on Wednesday.

Powell said that interest rate cuts are still likely in the coming months if Fed officials are more confident that there is further evidence of falling inflation. Markets are currently pricing in about a 75% chance that the Fed could begin lowering rates in June, higher than the 63% probability seen a day earlier, according to the CME Group’s FedWatch Tool.

Previewing February’s jobs report, TD Securities (TDS) analysts said: “We look for February payrolls to show some moderation in job gains after January's meaningful upside surprise.”

“The upshot is that we are looking for mixed signals from the February data, with a report that will likely point to a still-tight labor market that's yet to act as an obstacle for a normalization in wage growth,” the TDS analysts added.

Meanwhile, the US private sector added 140,000 jobs in February, an increase from the upwardly revised 111,000 increase in January while a tad below the expected 150,000 addition, ADP reported on Wednesday. The number of job openings on the last business day of January stood at 8.86 million, the US Bureau of Labor Statistics (BLS) reported in the Job Openings and Labor Turnover Survey (JOLTS). The data also came in slightly below the market forecast of 8.9 million.

How will US February Nonfarm Payrolls affect EUR/USD?

Loosening US labor market conditions and Powell’s comments smashed the US Dollar to fresh one-month lows across its major counterparts, lifting the EUR/USD pair to a six-week high above 1.0900. Will the US jobs report help the EUR/USD gain further upside traction?

An encouraging NFP headline figure alongside hotter-than-expected wage inflation data could diminish bets for a June Fed rate cut, providing the much-needed relief to the US Dollar at the expense of the Euro. On the other hand, disappointing data could add to the downward pressure on the US Dollar while boosting EUR/USD.

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

“The EUR/USD pair broke through the critical 50-day Simple Moving Average (SMA) at 1.0857 on Wednesday, opening the door for further upside. The 14-day Relative Strength Index (RSI) sits just beneath the overbought territory, suggesting that there is more room for the upside.”

“Acceptance above the 1.1000 level is likely to refuel the rally toward the 1.1050 psychological level. EUR buyers will then aim for the December 2023 high of 1.1140. Conversely, the initial demand area is seen at the 1.0900 round figure, below which the 50-day SMA at 1.0856 will be tested. The next support is seen near 1.0835, where the 100- and 200-day SMAs hang around. Further south, the 21-day SMA at 1.0821 could come to the rescue of EUR/USD,” Dhwani adds.