Why is NFP considered a "trigger" that causes markets worldwide to shake?

Every month, on the first Friday, the global financial markets become tense in anticipation of Non-Farm Payroll (NFP) — what is it? And how significant are these figures that can turn the forex market upside down, shift stock directions, and cause commodities to fluctuate?

What is Non-Farm Payroll (non farm payroll)?

Non-Farm Payroll refers to the number of newly employed workers in the United States, excluding agricultural workers, household employees, or nonprofit organization employees. The U.S. Bureau of Labor Statistics is responsible for producing this report.

Why exclude agriculture? Because this sector is highly seasonal and volatile, making it unreflective of the overall economic picture. Therefore, non-farm payroll is the most closely monitored indicator in the financial markets.

Why is NFP such a big deal for the financial markets?

NFP data provides a straightforward insight into the U.S. economy:

• Increase in employment = business expansion, consumers have more spending power, GDP grows
• Decrease in employment = economic contraction, recession risks increase

The most critical letter that central banks pay attention to

The U.S. Federal Reserve (Fed) uses NFP as a key variable in deciding whether to raise or cut interest rates. For example:

• NFP figures significantly above expectations → The Fed may worry about inflation → Raise interest rates
• NFP figures below expectations → The Fed may be more concerned about economic slowdown → Cut interest rates

And these interest rate decisions directly impact global markets.

How does Non-Farm Payroll affect the financial markets?

Forex (Forex)

A strong U.S. economy → U.S. dollar appreciates → Currency pairs like EUR/USD, GBP/USD, AUD/USD change direction

Stock indices (Indices)

Good employment data is positive for stocks, but a strong dollar can exert pressure, causing Dow Jones, S&P 500, NASDAQ to fluctuate.

Commodities (Commodities)

If the U.S. economy appears weak, investors tend to flock to gold and silver, pushing commodity prices higher.

How to trade when Non-Farm Payroll data is released

Workflow:

1. Analysts try to forecast the NFP figure (consensus forecast)
2. Actual figures are released → compare with expectations
3. If actual > forecast → good news, dollar strengthens, markets may be volatile
4. If actual < forecast → bad news, dollar weakens, risks increase

But the real key: How big is the difference between actual and forecast? The larger the gap, the more volatile the market, and the higher the risk.

Summary

Non-Farm Payroll is not just a statistical number; it’s the “heartbeat” of the global financial markets. It influences the Fed, investors, and traders worldwide, who hold their breath awaiting this data. NFP is the main reason why other central banks also adjust their monetary policies.

If you plan to invest in any market related to the U.S., it’s recommended to follow economic calendars and prepare for volatility around the report release every month.