05.04.202410:46 Forex Analysis & Reviews: What awaits markets in wake of US nonfarm payrolls

Most analysts again predict a deterioration in the labor market in the US, but all their expectations since the beginning of this year have turned out to be greatly underestimated. What kind of data will there be today? The number of new jobs soared from December last year to February. The question is whether there will really be a decline in March.

So, according to the consensus, the US public and private sectors are expected to create 212,000 new jobs in March, up from 275,000 in April. The unemployment rate is also expected to remain unchanged at 3.9%.

In addition to these figures, the average hourly wage will certainly attract attention. It is expected that it will slacken growth to 4.1% in annual terms from 4.3%, but in monthly terms, wages will add 0.3% in March against 0.1% in February.

Now let's look at the possible market reaction to these economic statistics.

As we previously indicated, market participants still want to believe that the Federal Reserve will cut its key interest rate three times this year. Earlier this week, Federal Reserve Chairman Jerome Powell again dropped a hint, arguing that the regulator was still waiting for the right moment to start cutting interest rates. You are certainly aware that the main condition for monetary easing should be a steady decline in inflation below 3% to the target level of 2% or close to it, as well as a deterioration in employment and, of course, an increase in wages, which directly stimulates demand for goods and services, boosting inflation acceleration.

But based on current principles for assessing the state of the American labor market, regular monthly job growth above 200,000 indicates good momentum. This, in turn, suggests that demand for goods and services will remain high and maintain inflationary pressure. In this case, the question arises: how the central bank can lower interest rates in such conditions? The logic of assessing the current situation, on the contrary, indicates the need to increase the interest rate by 0.25%. Otherwise, the regulator will simply need to forget about the cherished 2% mark.

If the data turns out to be in line with expectations or higher, this could destroy the Fed's timeline for a rate cut in May. In this case, the central bank will again promise to lower interest rates. But will the market believe it?

At the same time, if by some miracle, the number of new jobs falls below the landmark level of 200,000, then Powell's recent promise to cut interest rates this year will receive good motivational support. In turn, demand for stocks will skyrocket again and the dollar and Treasury yields will fall in parallel.

Time will tell which scenario we will see today.

Intraday forecast

GBP/USD

The GBP/USD pair is consolidating above the support level of 1.2600. If NFPs data shows growth above the forecast, then the instrument may break through this support level and rush towards 1.2530. At the same time, an unexpected decline in the number of new jobs below 200,000 could support GBP/USD and encourage its growth towards 1.2725.

USD/JPY

The USD/JPY pair is also consolidating above 151.00. Negative employment news can put pressure on the instrument. So, the price is likely to drop to 149.85. But, if the number of new jobs increases, then we can expect a local increase in the pair to 153.00.