Unveiling the job creation vs. dollar paradox: insights for the July 2023 NFP report

Over the past few months, the US economy has consistently exceeded job creation expectations, apart from a slight miss in April 2023. But why does the US Dollar keep slipping in value, and what can we expect at the non-farm payroll report on 07 July 2023, at 13:30 BST? 

US job creation keeps on impressing investors. 

Strong job growth has been observed in the US since November 2022, with notable instances of surpassing forecasts. 

For instance, last month saw the addition of 339,000 new jobs compared to an expected 180,000. Similarly, in February, the economy added 517,000 jobs against a forecast of 190,000. 

This positive performance, however, has not resulted in any significant growth for the US dollar, which has suffered notable losses against both the British Pound and the Euro. 

Why is strong job creation hampering the dollar?

The data shows an apparent reaction between the labour market report and the EUR/USD rate.

Table 1 shows that when the actual NFP outcome is lower than expected, the EURUSD drops. In other words, when the US economy underperformed, the dollar strengthened. On 07 April 2023, the EUR/USD was down by 3.7 pips four hours after the report release, while on 07 October 2022, the exchange rate was down by 36.1 pips.

Table 1: Actual NFP < Forecast NFP


In table 2, EUR/USD rose 60% of the time even if the non-farm payrolls beat economists' expectations, indicating the US economy outperformed. 40% of the time, the Dollar strengthened four hours after the event. However, on 02 June 2023, EUR/USD bottomed out around 40 pips lower two days later before trading higher over the next 20 days by 328 pips. This showed that even a strong beat could not turn the tide for the Dollar.

On the 3rd February 2023, the NFP beat expectations by a wide margin, and the exchange rate dropped by another 276 pips over the next 40 days.

Table 2: Actual NFP > Forecast NFP


The data is quite conclusive. When NFP data beats market expectations, the USD showcases temporary strength. Still, most of the time, the dollar would have given up its gains within four hours of the NFP report. On the other hand, when the data is worse than expected, we should expect a stronger Dollar. 

This is because the US dollar acts as a haven currency. A positive US data indicates that the world’s biggest economy is holding up despite high-interest rates, and people keep betting on high-beta currencies like the British pound and buying stocks. 

How will you trade the NFP this Friday? Create a ThinkMarkets account today and make the most of the latest updates on the financial markets!