What is non farm payroll?
Non farm payroll is a major economic indicator for the united states, because of this NFP can cause major swings in the market. Non farm payroll is calculated by adding up all the payed workers minus farm employees, nonprofit organisations, household employees and government employees. NFP is released on the first Friday of every month so is important to take into account NFP volatility when trading USD on NFP day.
What does NFP mean for the economy?
Increases in employment means a growing economy, it shows that businesses are hiring and willing to spend money which increases growth in the economy helped by more people paying taxes. Decreasing NFP means businesses are unwilling to spend money on new employees slowing the economy’s growth.
What effect does this have on the USD?
Non farm payroll can have a major effect on the USD both short term and long term. An Increasing employment rate shows a growing economy, an economy growing at a fast pace could lead to inflation which could lead to interest rate hikes, raises in interest rates means more demand for USD which means an increase in value. The opposite happens when NFP decreases, the economy slows, people stop spending and start saving, this could lead to interest rate cuts to encourage spending and boost the economy, rate cuts devalue the USD because there is less demand.