What impact does a higher non-farm payroll have on the forex market?

A:

Traders are constantly monitoring various economic indicators to identify trends in economic growth. Some of the most watched economic indicators include the Consumer Price Index, housing starts, gross domestic product and the employment report. Out of these indicators, the employment report contains a variety of data and statistics regarding the employment information of the market.

The employment report is released on the first Friday of every month by the Bureau of Labor Statistics, providing data covering the previous month. The report contains information on unemployment, job growth and payroll data, among other stats.

Out of the payroll data that is provided, the most important statistic that is analyzed is the non-farm payroll data, which represents the total number of paid U.S. workers of any business, excluding general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals, and farm employees. This data is analyzed closely because of its importance in identifying the rate of economic growth and inflation.

As with other indicators, the difference between the actual non-farm data and expected figures will determine the overall effect of the data on the market. If the non-farm payroll is expanding, this is a good indication that the economy is growing, and vice versa. However, if increases in non-farm payroll occur at a fast rate, this may lead to an increase in inflation. In forex, the level of actual non-farm payroll compared to payroll estimates is taken very seriously. If the actual data comes in lower than economists' estimates, forex traders will usually sell U.S. dollars in anticipation of a weakening currency. The opposite is true when the data is higher than economists' expectations.

To learn more, see Trading On News Releases, A Guide To Conference Board Indicators and Economic Indicators To Know.

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