Forecast: The impact of next Friday’s US Job report

Global markets closely await the Non-Farm Payroll data drop. Will the US Federal Reserve combat rising inflation by continuing to tighten monetary policy?

By Raed Alkhedr | @raedalkhedr | 8 March 2023

NFP Report-20230307-121901
Report expected to add 224,000+ jobs
  • Labour’s data results will dwell in equities

  • Federal Reserve members empathize with the need for control

  • A recovering economy could cope with rate hikes

The US Job report could prevent the dollars collapse!

The US dollar has followed an upward trend since the beginning of this year, supported by economic labour data from America’s Non-Farm Job report.

The report is expected to show an addition of approximately 224,000 jobs in the February's Job Report, but market expectations fear the probability of coming higher than the forecast, due to January's astounding 517,00 Job figure coming in double compared to the expected 193,000 Jobs. Despite on-going fears of a slowdown in the growth of the world’s largest economy, this would reflect the strength of the US economy as unemployment falls to a 53-year low.

The US Federal Reserve will also be determining its monetary policy by closely watching the labour sector. Considered as one of the most important sectors, its growth is spite of rising borrowing costs, declining consumer demand and a foggy economic outlook.

A series of positive data, including retail sales data, have continued to dominate global markets and confirm the recovery of America’s economy. However, markets remain disappointed by the slow pace at which inflation growth is confirmed to be decreasing.

Inflation data continues to hold near 6.5% levels, far from the Fed's targets which targeted a 2% annual rate of appreciation. By reducing the pace of rate hikes in February’s meeting by just 0.25 basis points, the Central bank’s path lays unfulfilled. Whilst inflation persists, markets remain jittery in expectation of continued aggressive rates.

Will America’s job data continue to improve?

Most forecasts suggest that unemployment will hold at 3.4%, near its lowest level in over 50 years. Global analysts argue that adding more than 500,000 jobs in February would continue to drive ongoing federal tightening. However as one of the most critical sectors to the US economy, the labour markets performance continues to outshine and support signs of strength and recovery.

Its continued improvement will also impact strongly on the stock market. Investors in equities have already suffered immensely and will be put under immense pressure by the overall performance of the labour market. Especially if it remains strong, supporting the bank’s decision to continue tightening.

What do we expect from the US Federal Reserve?

Most Fed members have emphasized that to control persistent inflation, raising interest hikes will need to continue. However, a recovering economy may hold enough tolerance to cope with the negative repercussions of these rate hikes.

The US dollar remains vulnerable to any changes in data, economic conditions, Federal Reserve member statements, and the bank’s upcoming intentions and directions over the next period.

If Friday's US Job report data comes back positive, the US Dollar will be supported by a strong boost for a federal decision to increase monetary tightening – not only until the March meeting, but at least until the end of this year.