The United States (US) Bureau of Labor Statistics (BLS) will release the Nonfarm Payrolls (NFP) data for December on Friday at 13:30 GMT.
The US Dollar (USD) will likely experience heightened volatility as the employment report could provide key clues about how the Federal Reserve (Fed) will approach policy-making in the new year.
What to expect from the next Nonfarm Payrolls report?
Economists expect Nonfarm Payrolls to rise by 60,000 in December following the 64,000 increase recorded in November. In this period, the Unemployment Rate is seen edging lower to 4.5% from 4.6%, while the annual wage inflation, as measured by the change in the average hourly earnings, is forecast to tick up to 3.6% from 3.5%.
The monthly report published by the Automatic Data Processing (ADP) showed that private sector payrolls rose by 41,000 in December following the 29,000 decline recorded in November. Additionally, the Employment Index of the Institute for Supply Management’s Services Purchasing Managers’ Index (PMI) climbed to 52 after staying in contraction territory, below 50, for six consecutive months.
Previewing the employment report, TD Securities analysts said: “We look for job gains to stabilize at around the 50k mark over the last two months, with private payrolls printing a 50k gain in December as the government likely shed 10k jobs over the same period.”
“We also expect the unemployment rate to normalize to 4.5% after seeing a shutdown-driven jump to 4.6% in November. Avg. hourly earnings likely rose 0.3% m/m and 3.6% y/y,” they added.
Economic Indicator
Unemployment Rate
The Unemployment Rate, released by the US Bureau of Labor Statistics (BLS), is the percentage of the total civilian labor force that is not in paid employment but is actively seeking employment. The rate is usually higher in recessionary economies compared to economies that are growing. Generally, a decrease in the Unemployment Rate is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. That said, the number by itself usually can’t determine the direction of the next market move, as this will also depend on the headline Nonfarm Payroll reading, and the other data in the BLS report.
How will the US December Nonfarm Payrolls data affect EUR/USD?
The US Dollar ended the year on a bullish note and kept its footing to begin 2026. Although the Fed adopted a dovish stance at the December policy meeting, market participants see a strong chance of the US central bank to hold the interest rate unchanged at the January meeting. According to the CME FedWatch Tool, investors are currently pricing in a less than 15% chance of a 25 basis points rate cut this month.
Nevertheless, the employment data could still influence the odds of a rate cut in March, which currently stands around 45%, and trigger a significant market reaction.
Earlier in the week, Richmond Federal Reserve Bank President Thomas Barkin said rate decisions will need to be “finely tuned,” given risks to both unemployment and inflation goals. Barkin noted that the unemployment remains low, but added that they don’t want the job market to deteriorate further. Meanwhile, Minneapolis Fed President Neel Kashkari said that the job market is clearly cooling and added there is a risk the Unemployment Rate can “pop from here.”
Rabobank analysts note that the market will be looking to fine-tune its expectations regarding the timing of the next Fed rate cut.
“Currently, the consensus expects steady policy to be maintained this month. Indeed, in view of the split within the FOMC, market pricing suggests risk of steady policy potentially into the spring. A soft payrolls report this week would undermine the USD. That said, we would expect the USD to again exhibit safe haven behaviour this year meaning the potential of support for the greenback. On balance, choppy trading seems likely as the market digests this year’s various events,” they explain.
A significant upside surprise in NFP, with a reading above 80,000, combined with a drop in the Unemployment Rate, could cause investors to lean toward another policy hold in March and boost the USD with the immediate reaction. In this scenario, EUR/USD could come under heavy bearish pressure heading into the weekend. Conversely, a disappointing NFP print of 30,000 or less could trigger a USD sell-off and allow EUR/USD to turn north.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:
“The Relative Strength Index (RSI) indicator on the daily chart dropped below 50 for the first time since late November and EUR/USD closed below the 20-day SMA for four consecutive days, reflecting a buildup of bearish pressure. In case the pair drops below the 100-day Simple Moving Average (SMA), currently located at 1.1665, and confirms that level as resistance, technical sellers could remain interested. In this scenario, 1.1600 (round level) could be seen as an interim support level before 1.1560 (200-day SMA).”
“On the upside, 1.1740 (20-day SMA) acts as dynamic resistance. If EUR/USD manages to stabilize above this level, it could gather recovery momentum and target 1.1800 (static level, round level), followed by 1.1870 (static level).”
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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