Euro Steady Ahead of Nonfarm Payrolls, Lagarde Speech

07/07/2023

1 minute read

2023.07.07 09:50

MarketPulse

is unchanged in the European session, trading at 1.0893.

Nonfarm payrolls expected to decline

All eyes are on Friday’s nonfarm payrolls, which is expected to decline for June. However, this week’s employment numbers have been mixed, and it will be interesting to see which direction the nonfarm payrolls release takes.

The ADP employment report, which precedes the nonfarm payrolls release by a day or two, tends to get glossed over, as it is not considered a reliable precursor to nonfarm payrolls, which follows a day or two after the ADP release. Thursday’s ADP reading was an exception, as the huge upturn stunned the markets. ADP for June showed a gain of some 497,000 new jobs, crushing the consensus estimate of 267,000 and the May reading of 228,000. The nonfarm payrolls report is expected to ease to 225,000 in June, down from 339,000 in May, but investors are nervous that nonfarm payrolls could follow the ADP release and surprise to the upside.

A strong NFP reading will be a major headache for the Federal Reserve, as it needs the labour market to cool down in order to bring inflation closer to the 2% target. If nonfarm payrolls surprise and climb higher, a September rate hike will become more likely. The money markets have priced in a rate hike on July 26th at 90% and have priced in a September pause at 67%, according to the CME FedWatch tool.

The ECB holds its rate meeting a day after the Federal Reserve and like the Fed, is expected to hike rates. Headline inflation in the eurozone has waned but the core rate remains stubbornly persistent. ECB President Lagarde has repeatedly said that the central bank has more work to do to bring down inflation, and we’ll hear from Lagarde later on Friday, with the markets looking for clues about the ECB’s rate plans.

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