ATFX comments: The non-farm payrolls report, also known as the big non-farm payrolls, will be released at 21:30 today, of which the new non-farm payrolls and unemployment rate are the two most important data for the market. Pre-nonfarm payrolls were 223,000 vs. 185,000, with a moderate decline expected. The unemployment rate is expected to rise slightly from the previous reading of 3.5% to 3.6%. The ADP small non-farm data released on Wednesday showed that the latest value of 106,000 was much lower than the previous value of 253,000 and the expected value of 178,000, and the more negative data caused the dollar index to fall 0.93% on the day, as low as 101.03. Since the small ADP and the big NFP both describe the changes in the US labor market, but there is a difference in sample size, so tonight's big NFP report has a greater chance of exceeding expectations. If the new non-farm payrolls are significantly less than the previous value and expected value, the US dollar index and the three major US stock indexes will be significantly impacted, especially the US dollar index, which may fall below the 101 mark.

The manufacturing and services PMI data in the United States is a precursor to the non-farm payrolls report. The latest U.S. manufacturing PMI released by S&P Global was 46.9 in January, slightly higher than the previous reading of 46.8, but still below the 50-point line. Expectations of a decline in the U.S. manufacturing sector remain, depressing hiring. The latest PMI reading for the services sector in January was 46.6, up from the previous reading of 44.7, but again below the 50-point line indicating contraction in the US services sector. The poor performance of the manufacturing and services sectors portends that the January non-farm payrolls report will also show negative changes, and it will be difficult to create more non-farm payrolls than the previous number.

Why poor non-farm performance is bearish for the Dollar Index? Because the Fed will stop raising rates sooner. The immediate purpose of raising rates is to curb high inflation, and the bottom line is not to trigger a recession. The core measure of macroeconomic recession is the unemployment rate, which is included in the nonfarm payrolls report. In December, the US unemployment rate was just 3.5%, well below the 5% threshold for full employment, indicating that the US has a very large macroeconomic cushion from recession. If there is a sustained increase in the unemployment rate in the coming months, the Fed will have to stop raising rates sooner than expected. If the recession caused by high interest rates does not show signs of stopping, the Federal Reserve may choose to cut interest rates in the fourth quarter of this year. At that point, the decline in the dollar index will intensify.

The non-farm payrolls report will also have an impact on the Treasury market. Good non-farm data will cause bond yields to rise, and bad data will cause bond yields to fall. Bond yields are an anchor for the rise and fall of the dollar index. Since October last year, it is because bond yields remain bearish trend, which has led to the dollar index from the high of 114 all the way back to the current 101 mark. The critical period for long - and short-term Treasury yields to invert has been reduced to six months: the six-month yield of 4.81% is higher than the one-year yield of 4.66%. This anomaly means that the critical period for the Fed to switch from raising interest rates to cutting them is getting closer.