Commerzbank’s Michael Pfister argues that a stronger United States (US) labour market only matters for the US Dollar (USD) if it shifts rate-hike expectations. He notes consensus has converged with initial payrolls figures, limiting surprise potential, and that intraday USD volatility around Nonfarm Payrolls (NFP) typically fades by the close, with little systematic link between payroll surprises and the USD index’s (DXY) daily move.

Payroll swings but muted daily impact

"Today’s US jobs report is the most important data release of the week. Following the significant positive surprise in May, when 115,000 new jobs were created instead of the expected 65,000, our economists are anticipating a similarly robust outcome today, with an expected increase of 100,000 new jobs (compared to the consensus forecast of 88,000). After several months of significantly weaker job growth (or even job losses), the US labour market appears to have stabilised somewhat recently."

"The key factor for the US dollar is the extent to which the figures bolster market expectations of further interest rate hikes. A positive surprise of 'just' 12,000 jobs is unlikely to be sufficient given that expectations are already quite high."

"It is also notable that whilst the US dollar becomes highly volatile shortly after the data is released, by the end of the day, hardly any trace of this volatility remains."

"Market participants should therefore not be surprised if the US dollar experiences significant short-term swings today, with little remaining at the end of the day."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)