Last week it was all about the USD. As always, the first trading week of any month focuses on the Non-Farm Payrolls (NFP) released on Friday. This week was no different.

Up to the NFP numbers, a series of other relevant data for the U.S. economy offered a glimpse into the NFP report. As always, the price action did not disappoint, with the most important piece of it happening after the NFP.

ISM Manufacturing and Non-Manufacturing Beating Expectations

The ISM reports are closely watched by traders around the world. Not only that they tell traders if an economic sector (i.e., manufacturing or services) is expanding, but the details in the reports help in finding out a possible NFP outcome.

For the month of July, both the manufacturing and services sectors in the United States reached the expansionary territory. When the ISM data exceeds the 50 level, it means that a sector is in the expansionary territory – a positive for the currency.

However, a closer look at the details in the report revealed that one of the weakest elements in the two reports was the employment component. Employment, according to the ISM, contracted both in the manufacturing and services sectors in July, sending a mixed signal heading into last Friday’s NFP release.

As such, the USD continued to trade offered despite the positive ISM headlines.

ADP Missed Expectations

The ADP report last Wednesday missed expectations completely. On expectations of over a million new jobs to be created in July, the report merely showed a little over 150k new jobs. The USD sold on the news, but investors quickly realized that the June data was revised much higher, more than compensated for the missing jobs in the headline. Hence, the private payrolls report did not help much with the interpretation of the NFP.

NFP and the Unemployment Rate Did Not Disappoint

The much-awaited event did not disappoint. Both the NFP and the Unemployment Rate exceeded expectations, sending the USD higher across the board. While the initial reaction was a mixed one, the USD traded on a firm tone for the rest of Friday partly moved also on profit-booking.

Problems for the U.S. labor market still exist. For example, the non-temporary job losses are on the rise since February, showing an increase in each month following the pandemic outbreak.

For the dynamics to change and the labor market to confirm the strong ISM data, the U.S. economy should start creating new permanent jobs. On the other hand, if investors believe that the peak in the unemployment rate is here, they will start bidding for the USD.

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