On Friday morning, the U.S. Bureau of Labor Statistics will release its July nonfarm payrolls (NFP) report. According to surveys conducted on Wall Street, it is anticipated that U.S. employers added 200,000 workers last month, following the addition of 209,000 jobs in June. The unemployment rate is expected to remain unchanged at 3.6%, indicating a tight labor market.
Economists have consistently underestimated the strength of the economy, resulting in repeated misjudgments of employment gains over the past year. Considering this historical pattern and forecast bias, there is a possibility that the NFP figures may once again exceed expectations, especially given the recent decline in initial jobless claims, a measure of layoffs.
The upcoming NFP report’s strength or weakness in comparison to consensus estimates will play a crucial role in influencing the U.S. dollar, gold, and the S&P 500’s near-term direction. Traders should closely monitor the economic calendar in the days ahead to adjust their strategies and make well-informed investment and trading decisions.
FED Interest Rate Expectations
During its latest meeting, the Federal Reserve emphasized its commitment to a data-dependent approach for making future decisions and assessing the broader outlook for normalization. This flexible guidance has reduced the probability of further policy tightening in 2023. However, any changes in economic conditions could lead to a reevaluation of the ongoing tightening cycle.
For example, if job and earnings growth exceed expectations significantly, it could prompt a more hawkish shift in interest rate expectations. Traders might anticipate another quarter-point rate hike in the fall to counter higher inflation fears. This could result in a bullish U.S. dollar but bearish effects on gold and the S&P 500. An NFP figure surpassing 300,000 could increase the likelihood of this scenario.
Conversely, if employment gains are weak, with job figures falling below 150,000, the opposite scenario is likely to unfold. A soft NFP report could raise concerns about the economy’s state, leading to a dovish repricing of the Fed’s tightening campaign. Consequently, the U.S. dollar could retreat, while the S&P 500 and gold prices may experience solid gains.