NFP[1] and Forex Trading: MAIN TALKING POINTS
- Non-Farm Payrolls (NFP) releases create volatility in the forex market.
- NFP measures net changes in employment jobs.
- Forex traders use an economic calendar to prepare for NFP releases.
What is the NFP?
The non-farm payroll (NFP) figure is a key economic indicator for the United States economy. It represents the number of jobs added, excluding farm employees, government employees, private household employees and employees of nonprofit organizations.
NFP releases generally cause large movements in the forex market[2]. The NFP data is normally released on the first Friday of every month at 8:30 AM ET. This article will explain the role NFPs play in economics and how to apply NFP release data to a forex trading strategy.
How does the NFP affect forex?
NFP data is important because it is released monthly, making it a very good indicator of the current state of the economy. The data is released by the Bureau of Labor Statistics and the next release can be found on an economic calendar[3].
Employment is a very important indicator to the Federal Reserve Bank. When unemployment is high, policy makers tend to have an expansionary monetary policy (stimulatory, with low interest rates). The goal of an expansionary monetary policy is to increase economic output and increase employment.
So, if the unemployment rate is higher than usual, the economy is thought to be running below its potential and policy makers will try to stimulate it. A stimulatory monetary policy entails lower interest rates and reduces demand for the Dollar (money flows out of a low yielding currency). To learn exactly how this works, see our article on how interest rates effect forex[4].
The chart below shows how
