NFP Misses Expectations But Unemployment Rate Drops

Last week it was all about the NFP on Friday. As is often the case, the market moves in tight ranges for the entire NFP week, and then on Friday with the release, it tries to break one way or the other.

This Friday was a typical NFP Friday – one marked by extra uncertainty as the President of the United States (POTUS) announced that he and the First Lady tested positive for COVID-19. Suddenly, the NFP was not the main event of the day, despite the fact that it remains the top economic news to watch in a trading month.

Lower Unemployment Rate Than Expected

While the NFP number disappointed (661k vs.850k expected), the unemployment rate came a tad better than expectations (7.9% vs. 8.2% expected). The data showed that the United States continues to add jobs at a steady pace, albeit the recovery is uneven and sluggish.

Behind the main headline numbers, the report shows a mixed picture. While the drop in the unemployment rate is welcomed, the labor participation rate decreased by 0.3%. Moreover, the number of unemployed people that did not have a job for less than five weeks increased to 2.6 million.

Nonetheless, the report had more positives than negatives in September. For example, the main headline showed only 661k jobs when compared with 900k. However, the numbers for the months of July and August were revised higher. In total, the revisions showed an extra of 145k jobs created in the two months, almost offsetting the difference between the expected number in September and the actual. If we combine with the steady decline in the unemployment rate, we do have a solid jobs report for September. However, the number of permanent job losses continued its trend higher, making it difficult to see consistent progress in the U.S. jobs market.

As mentioned earlier, the report failed to trigger significant market reactions. The EURUSD hovered around 1.17 for most of Friday and was little changed on the news. The same was visible on other USD pairs, as the AUDUSD, USDCHF, or the GBPUSD moved in tight ranges too.

The explanation comes from the U.S. election ahead of us and the fact that market participants do not want to take any risk whatsoever. Until there is more clarity regarding the electoral race, expect the tight ranges for the USD to continue.

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