Nonfarm Payrolls Preview: Another Rate Hike In Store?

Nonfarm payrolls and unemployment data are set for release today at 16:30 GMT+4. Markets are watching how the real reading will turn out compared to the expected and the previous reading. Expectations indicate that the US economy added around 193,000 jobs during the month of May 2023, compared to 253,000 last month.


Most notably, markets have already seen US JOLTs data come in strong this week. Job openings in the US rose to 10.1 million in April, outperforming the previous reading and the expected reading - a clear indication of continued strength of the US labor market. In general, the jobs data still maintains support extended for several years, in an additional indication of its strength.



US Jobs Data, Source: Bureau of Labor Statistics



Today’s jobs report is considered one of the most crucial data points in determining the future direction of interest rates and the Fed’s final interest rate decision. Expectations are as follows:


Reading better than expected and previous


This scenario could lead the Fed toward continuing its interest rate hike, which according to analysts, may reflect positively on the dollar and negatively on gold and stocks.


Reading within or below expected


The Fed will deal with loose interest rates, and therefore potentially negative for the dollar and positive for gold and stocks, according to analysts.


A reading between the previous and expected


This reading will be the most confusing and volatile for markets, and traders will also need to consider the following points.


  1. There are hints by a number of Federal Reserve members that interest rates hikes will continue, even if a temporary pause takes place at its next meeting.


  1. The US House of Representatives have passed the debt ceiling bill, thus easing fears of an economic recession.


  1. It has been pointed out several times previously that the final interest rate necessary for inflation to reach 2% is still unclear.


  1. It was also pointed out that there are no clear signs indicating a decline in inflation rates.


Therefore, when reading today’s jobs data, investors should keep in mind the Fed’s current dilemma, between further tightening rates or pausing in its next meeting. In general, we expect that the data release will be accompanied by volatile market fluctuations.


Traders should also note that the market's initial reaction, regardless of the nature of the real reading, may be sharp and volatile at first before stabilizing. Therefore, it is necessary to remember that traders have different ideas and convictions in the way they interpret the information issued, and therefore prices cannot move 100% according to that information.




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