Non Farm Payrolls Preview | Market Scenarios: NFP Report's Impact on USD

BY Janne Muta

|December 8, 2023

NFP Preview Report - Today's Nonfarm Payroll (NFP) report is eagerly anticipated, as it is expected to provide insights into the current state of the US labour market and the likely Fed policy path in 2024. With the Federal Reserve likely pausing its rate hikes, market attention has shifted towards expectations of rate cuts, with an anticipation of a series of 25 basis point (bp) rate cuts next year.

The current expectation is that the first rate cut will occur in March. Fed Funds Futures traders are assigning a 60% probability of a rate cut during the Fed's meeting in March.

While one data point does not determine Fed policy, a significant deviation from analyst consensus estimates could lead to short-term market fluctuations, providing traders with more trading opportunities. Analysts expect the November NFP to come in at 184K , which is 30K higher than the October figure. This context underscores the importance of today's employment data in shaping economic expectations and monetary policy.

Let's revisit the most recent labour market-related statistics as we seek to better understand the health of the US employment market and its impact on the Fed policy.

Positive Sign in ISM Services PMI

The ISM Services PMI for November exceeded expectations, rising to 52.7 from October's 51.8. This indicates robust growth in the services sector, driven by increased business activity and employment. New orders remained strong, and inventories rebounded. Despite a slight price pressure slowdown, the backlog of orders decreased, and supplier delivery performance improved.

Decline in Job Openings in October

In October, job openings decreased by 617K, reaching 8.733 million, the lowest level since March 2021 and below the expected 9.3 million. This decline was observed across various sectors, including healthcare, finance, and real estate, while information jobs saw an increase. The drop in job openings aligns with the broader trend of a cooling job market, particularly in sectors like healthcare and finance.

Hiring Slowdown According to ADP Report

The ADP report revealed that private businesses added 103K workers in November, falling short of the forecast of 131K. This hiring slowdown, especially in the services sector, suggests a cooling labor market. Notably, job losses in leisure and hospitality signal a shift from the post-pandemic recovery trend. While the ADP report implies potential challenges for the US economy, it also indicates a deceleration in inflationary pressures.

Unemployment Claims and Labour Market

Unemployment claims edged slightly higher to 220K, with continuing claims showing some improvement. However, this figure marks the second-highest reading since September, indicating a tight labor market but with emerging signs of easing.


The employment-related data released this week provides a mixed picture. On one hand, the ISM Services PMI for November surpassed expectations, indicating stronger growth in the services sector. This could suggest that the economy is still resilient, potentially reducing the urgency for rate cuts.

However, the decline in job openings notably in healthcare and finance, aligns with the broader trend of a cooling labour market, potentially warranting rate cuts to stimulate employment.

The ADP report's revelation of hiring slowdown in November, further supports the notion of a cooling labour market. This could add weight to the argument for rate cuts.

Additionally, the slight uptick in unemployment claims, though still at historically low levels, suggests a tight labour market with emerging signs of easing.

Potential Scenarios

  • A significant upside surprise could lead to a reassessment of expectations for the Fed's policy stance, possibly delaying the anticipated rate cuts. The impact could be dollar-positive and could weaken risk sentiment.
  • A substantial shortfall could affirm the need for rate cuts, potentially leading to further USD weakness, which, in turn, should help risky assets perform.

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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