NFP Cheat Sheet: Fall in unemployment rate to weaken USD and makes Trump happy

June 2020’s NFP is due out today at 12:30 GMT and will likely see a three-pronged reaction. Yohay Elam, an analyst at FXStreet, explains the three-staged approach to provide a better guide at the potential market reaction. 

Read – US NFP Preview: Eight major banks expectations for June jobs report

Key quotes

“The initial knee-jerk reaction is straightforward. Economists expect a second consecutive month of recovery, with three million jobs gained. Stocks are set to rise and the dollar to fall if the actual figure is higher while the opposite is on the cards if NFP misses.” 

“Salaries are skewed due to the disease and with the elections coming up, the headline unemployment rate becomes more interesting. If it falls from 13.3% to 12.3% as expected – or even lower – President Donald Trump would be able to take a victory lap. After the initial reaction, stocks may rise and the dollar could fall if Trump improves his chances amid an improving labor market. An increase in joblessness could send equities down and the safe-haven dollar up. That reaction could last into the close of America’s short trading week.”

“The third reaction may take more time – potentially for the following week. Economists are trying to figure out how many of those out of work are only temporarily at home and how many are there for the long term – core unemployment. Has core unemployment increased, stayed stable, or dropped? That may mark the third, longer-term, reaction. It will take time to reverberate.”