US Dollar Positioning Ahead of NFP Benchmark Revision
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The world of finance is abuzz with anticipation as the release of the preliminary estimate of the annual revision of Nonfarm Payrolls (NFP) by the Bureau of Labor Statistics (BLS) approaches. This highly anticipated event, scheduled to take place on Tuesday, September 9 at 14:00 GMT, is expected to have a significant impact on the US Dollar’s trajectory. As the markets hold their breath, the US Dollar Index (DXY) is trading around 97.60, down 0.16% for the day, reflecting traders’ cautious stance following a very soft August employment report.
Understanding the NFP Benchmark Revision
The BLS “recalibrates” the establishment employment survey by aligning the March level with the Quarterly Census of Employment and Wages (QCEW), a quasi-exhaustive benchmark based on unemployment insurance returns. This annual revision aims to provide a more accurate picture of employment dynamics. Tuesday’s announcement will specify, on a preliminary basis, the size of the cumulative gap from April 2024 to March 2025. Although it will not immediately alter the official series, it will guide the interpretation of past employment dynamics.
Several estimates converge toward a substantial negative revision. According to Fred Ashton of the American Action Forum, the range of -470,000 to -740,000 jobs for the March 2025 level is possible. Seeking Alpha synthesizes forecasts from Wells Fargo (-475k to -790k) and Evercore ISI (-625k), while notes relayed by Wall Street CN give Nomura an estimate of -600k to -900k, or -50k to -75k per month on average. These estimates suggest that the labor market slowdown may be more pronounced than initially thought.
The US Dollar Index 4-hour Chart
The US Dollar Index has remained on a downtrend since peaking at 100.26 on August 1, and it is currently in a downtrend channel on the 4-hour chart. The channel’s lower bound at 97.40 must be held to prevent the US Dollar from accelerating into a steep decline. If broken, the Greenback could fall toward the July 24 low of 97.11, before the July 1 low of 96.38. Any DXY rebound must first confirm a break of the current bearish channel, whose upper bound is currently at 98.50, before considering a more significant short-term bullish reversal.
| Currency | USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF |
|---|---|---|---|---|---|---|---|---|
| USD | -0.31% | -0.29% | -0.46% | -0.09% | -0.56% | -0.76% | -0.68% | |
| EUR | 0.31% | 0.02% | -0.05% | 0.22% | -0.23% | -0.40% | -0.35% | |
| GBP | 0.29% | -0.02% | -0.16% | 0.20% | -0.25% | -0.41% | -0.37% | |
| JPY | 0.46% | 0.05% | 0.16% | 0.29% | -0.13% | -0.45% | -0.19% | |
| CAD | 0.09% | -0.22% | -0.20% | -0.29% | -0.38% | -0.62% | -0.59% | |
| AUD | 0.56% | 0.23% | 0.25% | 0.13% | 0.38% | -0.16% | -0.12% | |
| NZD | 0.76% | 0.40% | 0.41% | 0.45% | 0.62% | 0.16% | 0.05% | |
| CHF | 0.68% | 0.35% | 0.37% | 0.19% | 0.59% | 0.12% | -0.05% |
Why it Matters for the Fed and the USD
An aggressive revision would reinforce the idea that the slowdown in the labor market is more pronounced than indicated by the monthly releases. Standard Chartered believes that a “catch-up” of 50 basis points (bp) as early as September is plausible. Fed Governor Chris Waller recently pointed out that once these revisions had been taken into account, private employment would probably have stagnated in recent months. This diagnosis would argue in favor of a weaker USD in the short term, particularly against the Euro (EUR), if inflation does not surprise on the upside.
The 2024 Precedent and Sector Sensitivity
In August 2024, the preliminary estimate had cut the April 2023-March 2024 cumulative figure by 818,000 jobs, the biggest revision (as a % of the total) since 2009. Following this, the Fed cut interest rates at its September 2024 meeting. If a similar pattern is confirmed, this could encourage analysts and traders to give greater consideration to the scenario of a 50 bps Fed cut as early as September, which would weigh on the US Dollar.
Key Takeaways
As we await the release of the NFP Benchmark Revision, it is essential to consider the following key takeaways:
- The US Dollar Index is trading around 97.60, down 0.16% for the day, reflecting traders’ cautious stance.
- Several estimates converge toward a substantial negative revision, suggesting that the labor market slowdown may be more pronounced than initially thought.
- An aggressive revision could reinforce the idea that the slowdown in the labor market is more pronounced than indicated by the monthly releases.
- The Fed may consider a “catch-up” of 50 basis points (bp) as early as September, which would weigh on the US Dollar.
Conclusion
As the markets eagerly await the release of the NFP Benchmark Revision, one thing is certain: the US Dollar’s trajectory will be significantly impacted. With several estimates pointing toward a substantial negative revision, it is essential to stay vigilant and adapt to the changing landscape. As we move forward, it is crucial to remember that the Fed’s decisions will be heavily influenced by the labor market’s performance. Will the US Dollar continue its downtrend, or will it rebound? Only time will tell. As the saying goes, “the only constant is change.” Stay informed, stay alert, and stay ahead of the curve. Share your thoughts on the US Dollar’s future trajectory in the comments below, and let’s continue the conversation.
