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How Do Non-Farm Payrolls Affect The US Dollar Exchange Rate?

By Peter Lavelle

Do you plan to emigrate to the United States? Or do you perhaps have an import/export business in the UK, and want to ship US goods into Britain? In either case, the US dollar foreign exchange rate will have a big impact on you. If the rate is good, it means you can buy that home in the States much more cheaply, or import your target quantity of goods at a better price.

Given that, you might like to know how Non-Farm Payrolls affect the US dollar. What does job creation have to do with the exchange rate, and what impact is it having now?

What is the Non-Farm Payroll?

In case you didn’t know, the Non-Farm Payroll is the number of jobs created in the United States each month, outside agricultural sectors. It’s published at the same time as the unemployment rate, much like in the UK.

It’s important meanwhile because it gives us a very clear snapshot of how the US economy is performing. If more jobs are being created, that suggests businesses are confident, willing to invest money in hiring new personnel, and that demand is strong, because they wouldn’t be hiring otherwise.

In addition, over time we develop a picture of how many jobs need to be created each month to signal that the US economy is doing well. Currently, that figure is around 200 thousand each month, which is enough to reduce the unemployment rate, while keeping up with population growth in the United States.

Beneath 200 thousand, unemployment is likely to rise, while signalling there’s a problem either with consumer demand or business confidence in the economy.

How does the Non-Farm Payroll affect the US dollar?

It works like this: if the Non-Farm Payroll is good, that means the world’s largest economy is ticking over nicely, which buoys global confidence. Contrary to what you might expect, that therefore encourages the US dollar to weaken, because financial investors have the confidence to invest elsewhere.

Conversely, and again in opposition to what you might think, a weak Non-Farm Payroll generally strengthens the dollar, because the financial markets react to these ill tidings buy buying the buck, and seeking safe haven in the world’s largest economy.

Of course, if you want to emigrate to the States or buy US goods, a strong Non-Farm Payroll is therefore what you want. This will encourage the pound to gain against the US dollar, as investors use the job creation data as an excuse to buy the pound. By contrast, consistently weak Non-Farm Payrolls would likely make US dollars more expensive.

When is the Non-Farm Payroll released?

The Non-Farm Payroll is released on the first Friday afternoon of each month, at 13.00 GMT. Whatever happens, we can expect the US dollar to move substantially in the aftermath.

Get in touch

I do hope this post has been of interest.

To find out how this data has affected your foreign exchange transactions, call us on +44 (0) 1494 671800 or email [email protected]. You can also visit us at foreign exchange specialist Pure FX. We’d be delighted to help with your enquiry.

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